Investing in Initial Public Offerings (IPO) always fascinates newbie and sophisticated investors alike. It has the potential to offer lucrative returns while investing once. Recent days saw a host of companies issuing their IPOs. Rossari Biotech Ltd., Happiest Minds Technologies Ltd., Route Mobile Ltd., Chemcon Speciality Chemicals Ltd., Angel Broking, and many other IPOs hit the market during July, August, Sept 2020. Route Mobile and Happiest Minds IPOs got listed in Secondary Market with attractive premiums, that enhanced investor’s wealth.
As an average investor, you may think why an IPO? Is it worth your time? Most often IPOs are launched with wide-scale announcements and stockbrokers invite investors to apply for it. It is a tough task to search for IPOs with the most potential. IPOs can outperform as well as underperform but yes, it has the potential to give good returns in a shorter or longer span of time. It brings an opportunity for retail investors to make significant gains. It can prove to be a smart move for an informed investor.
What is an IPO?
IPO (Initial Public Offering) is when the shares are offered to the public in the primary capital market for the first time. It allows companies to generate funds for its continued growth, by inviting investors to buy its shares.
A company can get listed in the secondary stock market i.e. stock exchange through IPO. The secondary market is where the existing shares are traded by investors.
How to invest in IPOs?
You can bid for IPOs in the offline mode or online method.
To buy shares at the IPO in online mode, you need to register with a stockbroker that handles IPO transactions. You will need a Demat Account to take the delivery of shares in electronic form at the time of share allotment. You can directly log in and buy through the trading interface provided by your brokerage firm.
The broker where you currently have a Demat and Trading Account may not necessarily offer the option to apply for IPO. In that case, they may provide a separate online form to apply for an IPO. In any case, you will need to have a Demat Account, so make sure your Demat Account is active before the IPO hits the market. You will need a PAN card, address proofs, and bank proof proofs to open a Demat Account.
For an offline application, you need to submit an application to the IPO banker or your broker.
Online IPO application is the preferred mode. The favorable point of the online IPO application is that it reduces the clerical effort from the investor’s side and simplifies the IPO application process because most of the data will be automatically pre-filled from his Demat & Trading Account.
Applying in IPO using UPI ID
Now it is possible to apply in IPO by using UPI ID, where you have to fill the IPO application form and enter the UPI ID. The amount to the extent of the number of shares that have been bid gets blocked. The investor has to authenticate the block mandate that they receive in their UPI App. Sometimes the block mandate is received after some delay. It is mandatory to approve the block mandate to complete the process.
Upon allotment, the amount to the extent of allotted shares will be debited, the remaining amount will get unblocked. In the case of no-allotment, the total amount will get unblocked.
Be an informed investor
A company going public and before it launches IPO takes it goes through a long process that includes the estimation of the company’s value, filing paperwork, and therefore, may take several months to be completed. Keep an eye on various publicly available sources to get updates about the upcoming IPO. Don’t be caught by the hype about IPOs as miracle money-making investments.
Such hype leads to speculation and haste investments. Select to invest in a company’s IPO whose fundamentals convey that its business will grow and make profits in the long run. Make sure you take all essential steps to perform detailed research on the company you are considering investing in. Go through the Red Herring Prospectus of the company on the Regulators website.
When you get the allotment of shares, you can hold the shares till the time it gets listed. If the shares get listed in the secondary market at a premium, you can sell the shares and book your profit. If your analysis and market observations imply the price may appreciate further, it is better to hold it for some more time. Some companies got their share prices to appreciate over a long period of time. Investors who continued to hold on to them made significant gains. For example, the shares of Amazon took some years to appreciate significantly in value. Therefore, it is always recommended to study the fundamentals of the company before investing, rather than getting swayed by the sentiments.