IPO is done to invite public investors to invest in their companies. It could be done by a start-up, young or well-established company, which decides to get listed on an exchange board and hence, announces initial public offering.
Any company or an issuer, which announces IPO, offers its shares with the help of investment banks. Once the IPO is commenced, company’s shares are traded in an open share market. Shareholders can further sale their shares through secondary market trading.
New offer vs. Follow-on offer vs. Offer-for-sale
Initial Public Offering is basically an umbrella term that covers a variety of sub-terms such as new offer, follow-on offer, and offer-for-sale. For instance, if the company announces IPO for the first time to get listed on the stock board, it is known as a new offer. On the other hand, if the company is already listed, but announces IPO for raising additional funds, then it is called follow-on offer. While, offer-for-sale is the case where the existing promoters and anchor investors decides to hive off part of their share holdings through IPO.
How to invest in IPO?
Over the years, the concept to invest in IPO has gained quite popularity as several prominent companies have come forward to announce their public offerings. Being one of the most popular modes of investment, it multiplies the investment amount in a short period of time. However, before jumping at the opportunity, it is first significant to understand the process to invest in Initial Public Offering.
Do homework – Keep first things first and do a little homework at your end. Go through the company’s financial background and prospectus to understand whether it is safe to put your hard-earned money in the investment. You can also find the respective company on the official website of Securities and Exchange Board of India (SEBI).
Funding :– Now once you’re aware of the company’s background, set a budget you wish to invest in IPO. Even if you don’t have sufficient funds available, there are certain banks and financial institutions willing to lend funds. But, before borrowing, make sure to go through the rate of interest.
Demat-cum-trading account :– Opening a demat account is mandatory to apply for an IPO. Demat account is basically a dematerialized account that stores your stocks and financial securities in a digital mode. So, open a demat account and keep the required documents ready (Aadhar card, PAN card, and income proof) if you wish to invest in IPO.
Application process :– Now you can apply for an IPO through demat trading account. The process is followed by biding and allotment of shares.