5 Factors to Consider Before Investing in an IPO

Published : 31 Mar 2023

 Understand the reason(s) behind the funding

Investors should understand WHY the funding is being raised. Is it for repaying the debt or for partly paying debt and expanding the business or for using the funds for corporate purposes.

Understand the business model

Before making any investments, every investor must follow the golden rule of only investing in businesses that they understand. Thus, it is necessary to understand the business of the company that is coming with an IPO

Study the SWOT

Understanding the Strengths, Weaknesses, Opportunities and Threats that belong to the company. This study also helps us understand the current health of the company and the future prospects that it may hold.

Comparison with Peers

Investors shouldn’t forget to compare the IPO company with its peers. Is the company doing better than its peers or is it par with its peers or is it underperforming? The Red Herring Prospectus contains all the necessary valuations comparisons between the company and the peers to help us analysis the IPO company better.

Investment Horizon

After studying the company and market conditions, the investor should have a clear goal with regards to his/her investment horizon. They should be clear about the fact whether they want to book profits with the listing gains or hold the company stock for longer.