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What Is An Initial Public Offering? How To Invest In An IPO?

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An IPO or Initial Public Offering is the shares that companies offer to the public before getting listed on the stock exchange. The companies who wish to go public i.e. list their shares in the stock exchange introduce their IPO to get investors interested in their stocks. The IPOs are allotted in lots and therefore, you need to bid for them in lots. If the bids are higher, the companies are able to raise more funds for their business expansion or development. 

How does an IPO work?

Companies that want to introduce their IPOs have to go through a lot of challenges. Their business is scrutinised because speculators want to know the true value of their shares before subscribing to their IPO. Also, they need to disclose their financial status to the stock exchanges and meet the eligibility criteria set by SEBI (Securities and Exchange Board of India). The upcoming IPOs provide you with a great opportunity to invest in a company before the stock market decides its true value. If an IPO manages to create a buzz in the market, its demand increases when it gets listed which eventually results in a quick appreciation of the stock price. 

Key IPO terms to know 

Here are the key IPO terms that you must know before applying for an IPO:

Issue Price

Issue price is the price at which a company offers its shares to the public. You must note that the actual value of the share might increase or decrease once the IPO gets listed in the stock exchange. Therefore, before applying for an IPO, you must determine whether its issue or offering price is fair or not. 

Lot size 

A lot refers to the smallest amount of shares that you can bid for. You can apply for multiple lots to get more shares allocated to your demat account. 

Price band

The price band refers to the price range in which you can bid for the IPO shares. The price band is generally set by the companies and underwriters and can be different for different types of investors. For instance, institutional investors might be eligible for a different price band as compared to retail investors. 

Underwriter 

Underwriter is usually an investment agency or bank that handles the IPO of a particular company. It is the underwriter that decides the issue price, lot size, and IPO allocation. 

List of Upcoming IPOs in 2022 

Here is a list of IPOs that are set to be launched in 2022:

IPOSize (In Crore Rs.)
Tracxn309
Five Star Business Finance2752
Go Air3600
MobiKwik 1900
Wellness Forever1600
Penna Cement1550
Muthoot Microfin700

How to invest in an IPO?

You can apply for an IPO through your demat account directly. If you don’t have a demat account, you need to apply for demat account opening online. Alternatively, you can apply for an IPO through banks that support the ASBA (Application Supported by Blocked Amount) facility. 

When you bid for an IPO through your bank or demat-cum-trading account, the funds required for the bid gets blocked. The details like your PAN Card number, demat account number, bank account number, and bid details need to be provided while applying for an IPO. The bids are selected randomly and lucky bidders get the IPO allotments in their respective demat accounts. However, if an IPO is oversubscribed, you may either get a partial allotment or won’t get any shares. The blocked amount is released if your bid does not get selected. After receiving an IPO allotment you need to wait for the shares to get listed in the stock market. 

Should you invest in IPOs?

Whether to invest in an IPO or not is your individual decision. If you don’t have enough information about the company that has introduced the IPO, it is better to invest in the shares of established blue-chip companies. Also, if you think that the demand for a particular IPO would be on the higher side for the first few days after its listing, it might be a good move to bid for it. 

However, it has been observed that many IPOs lose a significant percentage of their value after getting listed in the stock market. Therefore, you must make your decision after doing enough research and determine whether you want to stay invested in an IPO for the long or short term.

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