What is IPO and How to Invest in IPO?
What is IPO and How to Invest in IPO?
The stock market is a market full of uncertainties. If the market moves something else at one moment, it becomes a little difficult to get an idea of the stock market at the second moment. You too must be thinking about investing in the stock market often, but then you would think that after all how to invest in the stock market?
1. Primary Market (PRIMARY MARKET)
2. Secondary Market (SECONDARY MARKET)
In the primary market, you invest through an IPO, and INVESTING is directly invested in the stock market listed in the secondary market.
Let's understand about IPO.
What is IPO
An IPO is an initial public offer. When a company enters the stock market anew, that company has to sell its shares through an IPO.
Through an IPO, the company raises capital by selling its shares directly to investors and investors buy shares directly from the company.
Why IPO is launch
1.FOR EXPANSION
When a company feels that it is constantly moving forward and it needs more expansion, that is, now the company has to expand in other cities as well and for this, it needs people too, then in this situation the company issues an IPO. Though it can also resort to bank loans for the expansion of the company, the bank loan also has to be returned to the company with a fixed interest (INTEREST) at a certain time. Whereas if the company collects the funds through an IPO, it does not have to return that money nor pay any kind of interest.
This is the benefit of the company. Now let's talk about the benefits of people buying IPOs. Every investor who invests in an IPO gets a percentage of the stake in the company in return for that purchased IPO. That is, if a company has taken out some shares for IPO and you have bought two percent of those shares, then you own two percent of that company. In this way, both the company and the investor benefit from the IPO.
2.To reduce debt
When the company is in high debt, the company issues an IPO even in this situation. In such a situation, the company feels better to repay the loan by taking a loan from a bank, selling some shares of the company, and repaying the loan. In such a situation, the debt of the company is also paid and the company also gets new investors and the investor also gets a chance to own some share in the company.
3.To launch a new product or service
There is another reason for issuing an IPO. The company launches its new products and service. Whenever a company starts a new product or service, the company wants that service or products to be promoted and reach more and more people. Hence the company issues an IPO or Initial Public Offering (IPO).
IPO process
A company that wants to raise capital by listing its shares in the stock market has to seek permission from SEBI (Securities and Exchange Board of India) as well as other institutions. After that, you have to publish all the information about your company and advertisement for IPO. An IPO advertisement has to provide information about the financial position of the company. The company then sets a three-day period in which investors fill out the company's IPO form online. The company uses a lottery method to distribute shares. The shares are then credited to the Demat account of the investors who received the shares of the company. And those who did not receive the shares are refunded. The company is then listed on the stock exchange.
Terms Used In IPO
1. Price Band
The price band is a category in which you can bid for an IPO at any price.
E.g. If the price band of an IPO is 50 to 60, you can bid for any price between 50 and 60.
2.Issue Price
An issue price is a price at which a company offers its shares to investors. Investors can buy shares of the company at this lost price.
3. Bid Lot
The bid lot is mandatory for the investor to know at least how many shares.
Lots are usually 10 shares, 20 shares, 30 shares.
4. Issue size
The issue size is the total number of shares offered by a company in an IPO.
5. QIB
In IPO, 50 percent of shares are reserved for institutional investors like QIBs i.e. mutual funds, banks, insurance companies.
6. NIB
The 15 percent shares in the IPO are reserved for non-institutional investors.
7.Retail
In the IPO, 35 percent of shares are reserved for ordinary Indians. These shares are reserved for those with an investment of less than Rs 1 lakh.
8.Listing
Listing is the process of listing shares on a stock exchange. Anyone can buy and sell those shares at any time after the IPO is listed.
Types of IPOs
An IPO can be divided into two ways and the reason for dividing it into two parts is the determination of its prices.
- FIX PRICE ISSUE OR FIX PRICE IPO
- BOOK BUILDING IPO
FIX PRICE IPO
The company issuing the IPO discusses the issue of the IPO with the Investment Bank before issuing the IPO. In the meeting with the investment bank, the company issues an IPO to DECIDE. Any investor can subscribe to the IPO only at that fixed price. You can only buy an IPO at the same price that the price has been set.
BOOK BUILDING IPO
In this, the company together with Investment Bank designates an IPO PRICE BAND. It is released only when the price band of the IPO is decided. After this, the investor performs his bid subscription from the disinfected price band. There are two types of book building IPO's price band ...
If the price of IPO is less in the price band, then it is called FLOOR PRICE.
If the price of the IPO is more, then it is called CAP PRICE.
It is worth noting that the difference between CAP PRICE and FLOOR PRICE can be kept at 20% in Book Building IPO.
How to invest in an IPO?
What is an IPO and why is an IPO issued? Now know how to invest in an IPO after all?
The company issuing the IPO opens its IPO to investors for 3-10 days. Meaning when any IPO comes, any investor can buy it within 3 to 10 days. A company keeps only 3 days to issue its IPO and some more than three days.
You can invest in an IPO within these fixed days by visiting the company's site or through a registered brokerage. Now if the IPO is a fixed price issue, then you have to apply for an IPO on the same fixed price, and if the IPO is a book building issue, then you have to bid on that book building issue itself.
ALLOTMENT PROCESS
When the IPO opening is closed, the company allots the IPO. In this process, the company allots an IPO to all the investors and after the IPO is allotted to the investors, the shares are listed on the Stock Exchange. After being listed in the stock market, shares are bought and sold in the secondary market. Unless the shares are listed in the stock market, you cannot sell them. Once the shares are listed in the stock market, then money and shares are exchanged between these two investors.
Once listed, you can also sell and buy shares according to the stock market timing.
Benefits of IPO
An IPO is a kind of lottery. You can make a millionaire in an IPO in a very short period of time and with very little risk. In general, in many IPOs, investors' money has doubled in just eight days. Big money can be made in the stock market in a very short period of time through an IPO. Investors' money is doubled or even tripled through IPOs. But it requires luck, because not everyone gets a share in an IPO as the IPO is distributed by lottery. It has also hurt investors in several IPOs. So it is important to take all the information when investing in an IPO.
Keep some things in mind before investing-
There are some important things to keep in mind before investing in any kind.
Before investing, the company should also be compared with other companies.
The red herring prospectus of the IPO company must be read.
Investing is the right idea keeping all the things in mind.
Detail information about share market visit following pages
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