IPO stands for Initial Public Offering and is the first sale of stocks/Shares by a private company.It is used by the companies to raise capital for expansion. When a Company lists its securities on a Public exchange (Stock Market) the money paid by the investors goes to the company in return for a share in the company.
So an an Investor, following topics will surely interest you when we speak about IPO
- Which IPO to invest in or What should be your selection criterias.
- How can I apply for an IPO
- How are the stocks allotted
We’ll be looking at these areas one by one.
Selection Criteria – Things to consider before investing in an IPO
As an Investor you should look at the following key things before investing in IPO.
- What is the past track Record and Financials of the Company offering the IPO.
- What are the growth prospects of the company.
- What is the Credit Rating assigned to the IPO by Credit Rating Agencies.-Credit rating Agencies usually assign some ratings to the IPO.These are reflective of the risk factor associated with the IPO.Higher the rating,less risk free is the IPO to invest in.
- What is the Issue Price (price what you are paying)-Is it worth investing in the company at that price.
Apart from these broad criterias there are various other aspects to be considered while investing in an IPO but I do not want you to get bogged down with too much technical aspects here.
Applying for an IPO
Now a days most of online trading platforms provide you with facility of investing in IPO’s provided you have a Demat Account with them.This is the best option of applying for an IPO as it saves you from hassle of filling lengthy forms and submitting them manually.
However If you do not have a demat account,there are other options available to apply for an IPO.
You can get an IPO application form through the broking firms,Investment consultants or different Vendors.To get detailed info about this procedure you can refer to this – “How to Apply for an IPO“
Allotment of Shares
If you have applied for an IPO,it does not guarantee that you will always be allotted the stocks.It depends on how the IPO is subscribed.If It is subscribed only few times ( 3-4 times) then you have a high probability of being allotted but as the subscription goes up then the chances of being allotted goes down progressively.
Moderately Subscribed – Fewer people have applied for IPO -Higher chances of being allotted
Highly subscribed -Many people have applied for IPO – low chances of being allotted
If you are not allotted the stocks then you will get a refund within the stipulated time which is usually 30-45 days from the closing of issue.This article gives you an overview of the IPO from the viewpoint of an Investor.For other specific details you can refer to IPO related articles here.