How to Choose an IPO for Investing in Stock market?
Do you also want to buy an IPO in the stock market but don’t know what to keep in mind before investing in an IPO so don’t worry guys, today we will cover all the key points to keep in mind before investing in an IPO?
Key points to keep in mind before investing in a Stock market IPO
- What is an IPO in Stock market?
- Tips to Choose an IPO for Investing
- IPO Terms to Know Before Investing in an IPO
What is an IPO in Stock market?
IPO (Initial public offering) is a process by which any Pvt. ltd company can raise their funds through the Stock market by making it a public company and offer the company Stocks to the public and the stocks of the company get traded in the stock exchange.
Here is the main reason why a company offer its IPO
- To raise the capital of the company.
- For funding a new project.
- expansion plan of the company.
- For doing new research and development works.
- For funding the capital expenditures of the company.
- To pay off the existing debts or reduce the debt burden.
- For a new acquisition.
- To create public awareness of the company
- For the bunch of initial investors who are desiring to exit the company by selling their stakes to the public of India.
These are the main reason for any company to offer its IPO and IPO also give exposure to the company Branding and marketing.
Things to keep in mind before investing in an IPO?
IPO is also a form of investment but the real problem here is that all the company who offers there IPO are generally new and there is no enough information available about them comparing to the companies which are public and have their reports, news, and expert analysis already available on the internet easily.
All companies issue an RHP (Red Herring Prospectus). RHP is a summary of the company which provides important details like financial statements, revenue, earnings, risks, etc of the company. So always read it carefully before investing in any IPO offered in the stock market.
Always look at these important factors before investing in an IPO of the Stock market
- Growth Prospects and financial strength.
- Promoter holdings.
- Allocation of funds raised through IPO.
- Comparison with competitors.
- Beware of the oversubscription trap.
IPO Terms to Know Before Investing in an Stock market IPO
These are the terms to provide proper information to the investor who is thinking to invest in the stock market IPO
Size: - Size here refers to the offering size of the IPO these are the number of Stocks offered in the IPO to the public multiplied by the price per stock. Shows the amount company is trying to rise from the Stock market IPO. Fresh Issue: - This refers to the new equity Stocks issued to the public. Opening/Closing Date: - These are the dates between which investors are allowed to invest in the Stock market IPO. Price Band: - Price band is the band that refers to the minimum and maximum issue price of the stock to the public for a particular Stock market IPO. Lot Size: - In IPO Stocks are divided into Lots, you can not buy shares of any quantity you are only allowed to buy Stocks in lots every company goes with a minimum of 10 shares per lot. Face Value: - Refers to the original cost of the Stock.