Anyone can enter the stock market and invest in stocks by opening a Demat and trading account. Once a person opens a Demat account, many opportunities are available for people to earn through the stock market. Buying an Initial Public Offer is also one such chance.
What Is an IPO?
IPO or Initial Public Offer is the process through which a company becomes a public company and raises money from the people by selling its shares. A company becomes more accountable and regularised when it goes into an IPO. Furthermore, it aids the company's growth and development. The IPO process begins with the company selecting an underwriter and the stock exchanges on which the company's shares can be publicly distributed.
There are two types of markets the primary market and the secondary market. The shares in IPO are listed on the primary market, whereas the shares traded through NSE and BSE take place in the secondary market. Once an IPO is launched, the shares issued initially in the primary market are transferred to the secondary market and traded like normal securities.
A detailed description of how to buy IPO stock on the first day has been given below in the article.
Process of IPO in India
The following is the detailed procedure in relation to the process of raising money through IPO-
1. The first step involved is for the companies to register with SEBI, as the issue of IPO is managed by the Securities and Exchange Board of India.
2. The next step for the companies is to submit the documents with SEBI. They will check the documents, and upon being satisfied, they will approve the same.
3. While the approval is pending from SEBI, the company should prepare its prospectus.
4. Once the company gets the go-ahead from SEBI, it should disclose the number of shares it plans to issue and determine the share price.
5. There are two types of IPO issues- Fixed Price IPO and Book Building IPO. The company has to choose one of the two.
● Fixed Price IPO is the IPO where the price of the shares to be issued is decided beforehand.
● Book Building IPO is the IPO where the company provides a range of prices, and bidding takes place within that range of prices.
6. Once the company finalizes the IPO type, the shares are made public. Those who are interested in applying can make their application. The company would make the allotment upon receiving the subscription from the public.
7. After the allotment, the company lists the shares in the stock market. Once issued in the primary market, the shares get listed on the secondary market and become available for trading regularly.
How to Buy an IPO Online or Offline?
The IPO can be bought either through online mode or offline mode. The process for buying an IPO is given below-
● For applying for the IPO, the physical form can be obtained from a broker or a bank branch, or the same can be done online through your Demat Account.
● Fill out the form with all the details related to the number of lots you want to apply for, the details of the bank account, the Demat account, the total investment amount, etc.
● The shares will be allotted to you within 10 days from the offer's closing date.
It is also possible that in case of over-subscription, you may be allotted shares on a proportionate basis.
Factors to Be Considered Before Investing in an IPO
A few things must be kept in mind before investing in any IPO. The same are as follows-
● The first and most important thing is the investment you want to make. It all depends on the amount you want to invest, the risk you want to take, and your overall financial goals.
● The second thing to consider is the IPO you want to invest in. There are several IPO that takes place, and not all are profitable. Thus this selection must be made based on proper research about the company, including its fundamentals, valuation, and historical performance, as well as the grey market premium of the IPO.
● The third thing to remember is to collect all the information related to the IPO. Such as the details about the company in the prospectus, its long-term action plans, its areas of expansion, and its long-term goals.
Who Is Eligible to Invest in IPO?
Any person above 18 who can legally enter a contract can buy shares through IPO. The only requirement is to have a Permanent Account Number issued by the Income Tax Department and a Demat Account.
A Trading account is not necessary to apply for the IPO. However, a trading account is also required if you want to sell the shares upon listing. The application for the IPO is not an offer but an invitation to offer. Only when the company allows you shares, then it becomes an offer.
The Initial Public Offer or IPO is a profitable investment opportunity for many people. However, like it is with other investments, there are risks associated with IPO as well.
Hence it is very important to research the company you are investing in and consider all the factors before investing. Buying an IPO online in India through a Demat and trading account is easy.
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Frequently Asked Questions
Buying IPO is a good idea if you make the right IPO investment. When an IPO is successful, it can generate a good amount of profit in the short and long term. It is also a more transparent form of investment as the price is equal for all the people investing in it.
The IPO cannot be bought before it goes public. The pre-IPO shares are sold only to private equity firms, hedge funds, and a few retail investors. They are not available to the general public.
You can get a new IPO by applying for the same through your Demat Account online or offline mode. The information regarding the new IPOs or the upcoming IPOs is available in your Demat Account.
No, a single person is not allowed to make multiple applications or multiple times. If a person does so, then all the applications may be rejected. Thus, it is not possible to apply for an IPO twice.
The IPO can be bought offline by filling out the application form with all the details. The physical form can be obtained from a broker, bank branch, or designated centre.
Some ways to increase the chances of an IPO include not making a large application, applying for the IPO in the first two days and not waiting till the last minute, bidding for the shares at the cutoff price, etc.