IPOs, or Initial Public Offerings, are a way of generating selling equity in a business to raise capital for a business. It can also be a way for successful entrepreneurs to sell part of the business they successfully created, to other investors. It is also a way of raising capital for future investments for a company. For investors who are looking for a way to invest in stocks that seems to have a bright future, here is the process that details how to participate in an IPO.
How to invest in IPOs?
Before participating in the process, as an investor, you need to consider a few important things:
- When you are planning to invest in an IPO, you first need to understand the essential investment criteria, your financial goals, and risk appetite. After taking into account these factors, you are in a better position to invest in IPOs.
- Before investing, it is advisable to conduct a thorough research on the company, its historical performance, and fundamental evaluation.
- It is a must to understand the long-term financial and business planning of the company, its position in the market and its sector, and the company’s future plan of action.
Steps to invest in an IPO
To invest in an IPO, investors need to follow the steps mentioned below:
Thoroughly research the company
The first step to understanding how to invest in an IPO is doing proper research about the company. This information is available to the public through the Securities and Exchange Board of India or SEBI. It is a way to gather knowledge about the company’s past performance and gauge how rewarding it can be to buy its shares.
Once you decide that you are willing to invest in a particular IPO, the next step is arranging funds to invest in the same. For making purchase in an IPO, an investor may use their savings. An important point to be noted is that IPO shares are available for purchase only in lots. A lot size in an IPO refers to the minimum number of shares a company offers in one transaction. As an investor, you need to have a good amount of funds for investing in an IPO.
Creating a demat account
Investing in an IPO is not possible without creating a demat account. It is the only way of selling and buying securities online. The important documents required to open a demat account are address and identity proof. You can also enlist the help of intermediaries to create a demat account.
The application process requires the investor to be familiar with the ASBA (Application Supported by Blocked Account) facility. When you plan to invest in an IPO, the bank blocks a certain amount for bidding purposes. With the introduction of Unified Payments Interface, now you can also bypass the ASBA application process, and apply for an IPO directly through your broker.
An investor is required to bid from the price range set by the company. The lowest price in bidding is floor price, and the highest is called cap price. After selecting the lot size and price, the bank blocks the total amount from the account of the investor till the allotment takes place.
After the completion of the above-mentioned steps, allotment of shares takes place. It is a must for an investor to check all the selected shares allotted. Sometimes due to excessive demand in the secondary market, shares may not get allotted to you. In such scenarios, the bank will unlock the amount blocked. In case the full share allotment takes place, you will receive a Confirmatory Allotment Note (CAN) within 6 working days, following the conclusion of the IPO process.
Investing can often seem complicated and stressful. If you want to participate in an IPO but are looking for some expert advice and guidance, you should reach out to a financial advisor that can help you invest in stock market & reach your financial goals over time, through different investment avenues.