Simplifying the IPO Process for Listing Your Company on Stock Exchanges

Nutan Gupta

17 Feb 2017

It is a matter of great pride for any company to go public. However, there is a certain process which a company needs to follow in order to come out with an Initial Public Offering (IPO). This process involves six steps post which a company can list itself on the exchanges.

Appointing an Investment Bank

All banks, public or private have an investment division which takes care of the IPO process. All one needs to do is to fix up a meeting with any of the banks and pay the required fees. Thereafter, it is the job of the bank to make your company public.

Registration Forms to SEBI

Securities Exchange Board of India (SEBI) is an autonomous body which regulates the entire finance and investment markets in India. SEBI’s sole purpose is to provide transparency and protect the investor. Every IPO has to mandatorily register with SEBI and once it gets the approval, the IPO is ready to get listed on the exchanges.

Red Herring Prospectus

The Red Herring Prospectus is a document which contains all the information about the IPO - the size of the IPO, financial statements, company history and the future plan of the company.

Advertising

Advertising includes everything from putting up hoardings to giving interviews to news channels and magazines. Basically, the more your company is talked about and known, the more demand it will attract from the investors, which in turn will help in a better listing price on the exchanges. In the past, companies like Just Dial, Twitter & Facebook have used heavy advertising as a means to promote and attract investors.

Price Band Set by Investment Bank

The investment bank goes through all the financial statements of the company and sets a price band for prospective investors to bid within the price band. However, retail investors are not the only players who participate in the bidding process. Mutual funds, institutional investors, hedge funds and insurance companies also participate in the bidding process. The process of bidding between price bands is called price discovery. The price is set on the basis of demand and supply. One important thing to note here is that, when you are bidding for the shares, you cannot bid for one share. If one lot consists of 10 shares, you have to buy the entire lot of 10 shares.

Book Bidding Process

Once the bidding is done, the banks identify if the issue is over-subscribed or under-subscribed. If the issue is over-subscribed, the banks release the shares at the highest band and the share is listed.

If you wish to know when the right time to buy a stock is, you can get to know by calculating the price-to-earnings ratio (P/E ratio). This ratio is calculated by dividing the share price of the current stock by the earnings per share.


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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Simplifying the IPO Process for Listing Your Company on Stock Exchanges

Nutan Gupta

17 Feb 2017

It is a matter of great pride for any company to go public. However, there is a certain process which a company needs to follow in order to come out with an Initial Public Offering (IPO). This process involves six steps post which a company can list itself on the exchanges.

Appointing an Investment Bank

All banks, public or private have an investment division which takes care of the IPO process. All one needs to do is to fix up a meeting with any of the banks and pay the required fees. Thereafter, it is the job of the bank to make your company public.

Registration Forms to SEBI

Securities Exchange Board of India (SEBI) is an autonomous body which regulates the entire finance and investment markets in India. SEBI’s sole purpose is to provide transparency and protect the investor. Every IPO has to mandatorily register with SEBI and once it gets the approval, the IPO is ready to get listed on the exchanges.

Red Herring Prospectus

The Red Herring Prospectus is a document which contains all the information about the IPO - the size of the IPO, financial statements, company history and the future plan of the company.

Advertising

Advertising includes everything from putting up hoardings to giving interviews to news channels and magazines. Basically, the more your company is talked about and known, the more demand it will attract from the investors, which in turn will help in a better listing price on the exchanges. In the past, companies like Just Dial, Twitter & Facebook have used heavy advertising as a means to promote and attract investors.

Price Band Set by Investment Bank

The investment bank goes through all the financial statements of the company and sets a price band for prospective investors to bid within the price band. However, retail investors are not the only players who participate in the bidding process. Mutual funds, institutional investors, hedge funds and insurance companies also participate in the bidding process. The process of bidding between price bands is called price discovery. The price is set on the basis of demand and supply. One important thing to note here is that, when you are bidding for the shares, you cannot bid for one share. If one lot consists of 10 shares, you have to buy the entire lot of 10 shares.

Book Bidding Process

Once the bidding is done, the banks identify if the issue is over-subscribed or under-subscribed. If the issue is over-subscribed, the banks release the shares at the highest band and the share is listed.

If you wish to know when the right time to buy a stock is, you can get to know by calculating the price-to-earnings ratio (P/E ratio). This ratio is calculated by dividing the share price of the current stock by the earnings per share.