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What is IPO & How to Invest in IPO in India?

Introduction-

While browsing the newspaper’s pages, you’ll are presented with an announcement about an IPO offer by a company. If you’re one of those, ask what exactly is IPO or what the significance of IPO is? So, here we have discussed the fundamentals of the word and some of the theories surrounding it.

What exactly is IPO?

The term “IPO” or initial public offering IPO (also known as an initial public offer) is the procedure by which a privately-held company, or one owned by the government, like LIC, raises money through the sale of shares to the general public or new investors. After the IPO, the company will be registered on the Stock Exchange.

When launching an recent IPO, The company must file offer documents to the regulator of markets, the Securities and Exchange Board of India (Sebi). The offer document includes all pertinent information regarding the company, its promoters, projects, financial information, the purpose of raising funds, the conditions of the issue, etc.

Types of IPOs-

You might find all the jargon surrounding an IPO confusing if you’re a brand new investor. To clarify, two primary types of IPOs are offered by businesses.

Fixed Price Offering-

Fixed price offerings are pretty simple. The company announces the cost of the public offering’s initial public offering ahead of time. Therefore, if you participate in a fixed-price initial public offer, you are committing to pay the total amount.

Book Building Offering-

In the book building offering where the price of the stock is listed in a range of 20 per cent, where interested investors make their bid. The lower end in the price range is referred to as the floor price, while the top limit is called the cap price. Investors can bid on the number of shares and the price they are willing to pay. It allows the company to test the interest in the initial public offering with investors before the price is announced.

How to Invest In an IPO?

To participate in an IPO, investors must follow specific steps to ensure they’re on the correct path. A thorough understanding of these steps can help investors participate in an upcoming ipo in India without facing any difficulties.

Do your homework before deciding to decide to invest in IPO-

The most critical step in investing on the process of investing in an IPO is to research and research the company you are attempting to get. The best way to understand its business plan and the reason to go public is to study the prospectus released from the business. The prospectus is available from this website, owned by India’s Securities and Exchange Commission. A lot of hype surrounds the IPO, and this is the thing you must stay clear of. Please find out about the company’s achievements in the past and how it intends to invest the money raised by IPO shortly. After analyzing and absorbing the complete information, you can make your decision carefully before making a decision.

Arrange the Funds-

After you’ve decided on the IPO you would like to invest in; The following step will be to set up the funds required for the same. To buy IPO, it is possible to use the savings of the investor could be used. The shares can be purchased in bulk, so an amount of money is needed for investment in IPO.

The lot size is the minimum amount of shares the company sells in one transaction. It is impossible to purchase only one or two shares of your desires.

Let’s look at this by using an example-

Imagine a business has decided to go public and decided that its lot size will be the equivalent of 103 shares. If you decide to take part in the IPO, you must purchase at least 135 shares at once. If you wish to purchase more shares, you’ll have to purchase a second lot comprised of three hundred shares. That means you are a business shareholder with a total of 206 shares, which will be two lots. The fundamental understanding of this scenario is that shares from an IPO are only available in multiples of the size of the lot.

If an investor doesn’t have enough money to cover his expenses, he may opt for a loan. Several bank branches, including nationalized ones and private and stockbrokers such as Angel broking, can offer the benefit of loans at low prices.

Setting up an account Demat Cum trading account-

Anyone who wants to apply for IPO must be able to establish at least a Demat account. This is the primary requirement for investing in an IPO. Demat accounts allow the buyer as well as selling securities on the internet. Specific documents like the Aadhar number, PAN Card address, and identity proofs are required to create an account with a Demat account. There are many intermediaries and stockbrokers on the market. Through them, you can create an account Demat Account online in just a couple of minutes.

This is a list of the top stockbrokers for your convenience, so you don’t have to scour the web to open an account. Demat account.

  • Angel Broking
  • Zerodha
  • Upstox
  • Sharekhan
  • Motilal Oswal

The application process-

The bidder must know the meaning of ASBA to understand the procedure. Applications supported by a block amount let banks block investors’ funds before making bids. When submitting an application for an IPO, together with the details regarding lot size, bid numbers and so on, the investor has to be able to agree to block the funds for the investment.

Bidding

The next step is to bid. Investors must bid at a specific price within the range set by the business. Within the range, the lowest price is referred to as the floor price, and the highest price is referred to as”the cap”. When the price and the lot size have been determined, the entire amount is held by the banks in the investor’s account until the allotment process is completed.

Allocation of shares

The last stage is the allocation of shares. After all the steps mentioned above are completed, and bidding has been completed, they will be distributed to investors. There is a chance that you’ll get less than what you paid for. This can be due to the over-demand in secondary markets. In these cases, banks will release the blocked amounts. If an investor receives the whole allotment of shares will be issued a confirmatory allotment notice (CAN) within six days of the closing of the IPO. Then, he must wait for the company’s stock to be traded on the exchange.

Who is eligible to invest in an IPO?

There are several types of investors that can take part in an IPO. QIBs or qualified institutional buyers (QIBs) comprise foreign portfolio investors (FPIs) and commercial banks, mutual funds and pension funds, insurance companies, and pension funds, among others.

Anyone who invests more than 2 lakh on investment is considered a retail investor. Retail investors above Rs 2 lakh are categorized as high net worth.

Your age must be at least 18 years to invest. An account with a brokerage is required to invest, and you need to be 18 to be able to open one.

Conclusion-

Although IPOs allow investors to invest in reputable businesses, the cost of the offer should not be enough to warrant an IPO subscription. Similar to investing in shares of a company that is already listed, the decision to subscribe to an IPO should result from a thorough study.

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