Why Should You Invest in an IPO?

5paisa Research Team Date: 29 Sep, 2022 01:02 PM IST

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Introduction

The investor community is currently gushing over IPOs. An IPO seems like a safe bet because you can buy at a low price and sell high. Both beginners and experienced investors have begun tracking upcoming IPOs and making an IPO list for future investments.

IPO can be an almost foolproof plan to make your money grow. However, people may hesitate in investing since they are not sure whether it can fetch good returns. If you are one of them, we can list multiple reasons why you should invest in an IPO. 

But first, let’s start with the basics.

What Is IPO?

An IPO or initial public offering is a stock launch or public offering in which a company sells its shares to institutional and retail investors. An upcoming IPO is generally underwritten by one or multiple investment banks, who also list the shares on stock exchanges. 

Stock prices generally increase after an IPO listing. That is why people rush to subscribe to stocks of promising companies. The aim is to get quality stocks at a reasonable price, which they can sell at higher prices later.

Companies offer IPOs to raise funds from the capital market. The capital from a new IPO can be used for business needs like expanding capacity, diversifying products, opening new stores, setting up R&D, performing mergers and acquisitions, etc.

In 2020, new IPOs raised a total of INR 22,420 Cr in India. IPOs help companies to gain public visibility and improve capitalization. They also give the public an opportunity to be a small stakeholder in the company.

Why Should You Invest in an IPO?

Merely knowing IPO meaning and definition won’t help. You should also know its investment benefits. Simply put, there are numerous reasons to invest your money in IPOs.

Early Access

By investing in an IPO, you get early access to a company that has high growth potential. It can fetch you a high-profit percentage in a short time, as well as grow your funds in the long run. If you are good at predicting the future of companies and recognizing whether the latest IPO to be released is going to be successful, this is a great investment path for you.

Long-Term Profits

Investing in a current IPO is like investing in equity. They can bring you good returns over a long period of time, which you can then put into life goals and financial commitments. With the growing stock market in India generating billions of dollars in IPOs, it is no riskier than mutual funds or other traditional investment options.

You can check the allotment status of all IPOs in the Linkintime IPO portal.

Transparent Pricing

IPOs offer transparent pricing since the price per security is mentioned in the IPO order document. No matter how big or small an amount you have invested, you get access to all information. You will also be able to track changing market rates and the share prices of IPOs post listing.

Wealth Creation

The share market, although volatile, can help you create wealth in the long term by investing in valuable stocks of well-performing companies. An IPO is your window to create wealth by picking quality stocks and investing in competitive prices. This way, you may also get stock appreciation benefits in the future.

Since IPOs are reasonably priced, you can buy multiple shares within a budget. If the company then grows, your stock prices would shoot up fast. If you choose to buy stocks after the company is already established, they will cost you much higher.

Smart Selling

If you are on an IPO watch, you can make smart decisions about investing in small companies that have massive growth potential. Recently, Nykaa’s IPO launch grabbed a lot of eyeballs, and people were clamouring to get their hands on its shares.

This is because the share will be at its cheapest price at that point if the company has growth potential. In case you miss the IPO window, you may face sky-high prices later. On the other hand, if you buy now, you can sell the shares later with a huge profit margin.

Additional Perks

Shareholders are entitled to bonus shares, dividends, and so on. If the company turnover increases, you can avail additional benefits by owning IPOs. Historical records state that equity has generated higher returns than other asset classes. Hence, it is a good idea to hold a portion of the equity in your investment portfolio.

Final Thoughts

IPO investments are mostly great decisions if you are well-informed and aware of the market condition. Some IPOs create history, leading to huge regret in people who passed on the opportunity. A smart investor always keeps track of the upcoming IPO list and adds valuable shares to their portfolio to make their money grow by leaps and bounds.

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