IPOs Are Great Investments

Nutan Gupta

01 Aug 2017

Initial Public Offering (IPO) is when a private company owner lists his company on the market for the very first time. It can be an exciting offer as you get to invest your money in a new idea and get the shares of the company in return. Contrary to the popular belief of it not being a good investment option, it is among the ones that can give you highest returns if chosen correctly. So, let’s first understand what is an IPO and how becomes a profitable investment option.

When do companies go public?
IPOs are issued when smaller companies are seeking funds to expand their businesses and hence invite investors to provide capital to them. The investors are then given the shares on the company which is in proportion to the capital they invest. Since the public or the general investor is directly involved, it helps boost the company’s brand image as well. 

What are the various IPO issue types?
The company that goes public can issue in broadly two types:
 
IPOs Are Great Investments

1. Fixed Price
This is simple and just like the name suggests, the price of the shares are fixed. The company offering IPOs decide the price well in advance and you as an investor get no say in it. You need to buy the shares at the fixed rate decided by the company. 

2. Book Building Issue
This is used when the company does not want a specific price set on the security. In cases like these, they offer a price range to the investors. Contrary to the previous type, here you can bid your price anywhere in the given range. This offers more flexibility to the investor. 

Advantages of IPOs to the investors
IPOs present a variety of benefits to the investors. These include:
1) The initial stocks are only available to those who are alert and knows about it
2) The prices are on the lower side
3) The prices might shoot up once the company starts picking pace and hence buying IPOs could mean getting those prospective positive shares at low rates
4) If you wish to sell some shares once the company has made profit, you would not only get back your investment but also a significant amount of profit in terms of dividends or capital gains
5) As you own the share of the company, depending on the portion of the stake, you get a chance to attend and have a say in the Annual General Meetings

Benefits for the company
IPOs are a profitable proposition from the company standpoint as well.
1) With more shares made public, it gains the trust of investors in the market
2) Listing on the bourses can enhance the credit rating of the company
3) It can attract top talent and resources as it now offers the stock options to the stakeholders
4) Executive’s wages are adjusted with the promise of cashing it out with the IPO late

To sum it up

Investing in IPO is like playing dart and not carrom. Here, you can’t invest your funds in any and every pocket (IPO) that is closest or convenient. You need to focus instead on the ones that you are confident about and aim for the bull’s eye for the best returns. You might have to wait sometimes, but it is definitely worth the wait!


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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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IPOs Are Great Investments

Nutan Gupta

01 Aug 2017

Initial Public Offering (IPO) is when a private company owner lists his company on the market for the very first time. It can be an exciting offer as you get to invest your money in a new idea and get the shares of the company in return. Contrary to the popular belief of it not being a good investment option, it is among the ones that can give you highest returns if chosen correctly. So, let’s first understand what is an IPO and how becomes a profitable investment option.

When do companies go public?
IPOs are issued when smaller companies are seeking funds to expand their businesses and hence invite investors to provide capital to them. The investors are then given the shares on the company which is in proportion to the capital they invest. Since the public or the general investor is directly involved, it helps boost the company’s brand image as well. 

What are the various IPO issue types?
The company that goes public can issue in broadly two types:
 
IPOs Are Great Investments

1. Fixed Price
This is simple and just like the name suggests, the price of the shares are fixed. The company offering IPOs decide the price well in advance and you as an investor get no say in it. You need to buy the shares at the fixed rate decided by the company. 

2. Book Building Issue
This is used when the company does not want a specific price set on the security. In cases like these, they offer a price range to the investors. Contrary to the previous type, here you can bid your price anywhere in the given range. This offers more flexibility to the investor. 

Advantages of IPOs to the investors
IPOs present a variety of benefits to the investors. These include:
1) The initial stocks are only available to those who are alert and knows about it
2) The prices are on the lower side
3) The prices might shoot up once the company starts picking pace and hence buying IPOs could mean getting those prospective positive shares at low rates
4) If you wish to sell some shares once the company has made profit, you would not only get back your investment but also a significant amount of profit in terms of dividends or capital gains
5) As you own the share of the company, depending on the portion of the stake, you get a chance to attend and have a say in the Annual General Meetings

Benefits for the company
IPOs are a profitable proposition from the company standpoint as well.
1) With more shares made public, it gains the trust of investors in the market
2) Listing on the bourses can enhance the credit rating of the company
3) It can attract top talent and resources as it now offers the stock options to the stakeholders
4) Executive’s wages are adjusted with the promise of cashing it out with the IPO late

To sum it up

Investing in IPO is like playing dart and not carrom. Here, you can’t invest your funds in any and every pocket (IPO) that is closest or convenient. You need to focus instead on the ones that you are confident about and aim for the bull’s eye for the best returns. You might have to wait sometimes, but it is definitely worth the wait!