When a company decides to raise funds from the capital market and become public, it issues an Initial Public Offering (IPO). This strategy allows the company’s founders and initial investors to exit and realise the full profit from their private investment.
There are several benefits of an IPO for both the company and the investors. With an IPO, while a company can raise capital to grow its business, investors can earn returns on their investments in the business.
Investors can purchase IPOs from the primary market and sell these units on the secondary market to gain returns. Read on to learn more about the advantages of IPO investment and how you can reap its benefits.
When a company goes public, investors can buy IPOs from the primary market. Once the IPO units are issued, you can trade these units in the secondary or the exchange market, providing high liquidity to investors.
One of the biggest benefits of an IPO to investors is that it provides early access to a company’s shares with high growth potential. Hence, it is a window for investors to make rapid profits in the short term.
With an IPO investment, you can diversify your portfolio if you have mostly parked your funds in traditional investment tools. In addition, no one investor can end up with majority shares of the company, which also creates a form of diversification.
Being equity-based securities, one of the other IPO investment benefits is that it offers high returns. However, they also carry higher risks because their returns depend on the market conditions. So, remember to invest in them as per your risk tolerance.
In addition, an IPO is a window to invest in a company with a high growth potential, at a discounted price. If you miss this window, you may not get the chance to buy stocks at a lower price and earn excellent returns when the company grows.
When you invest in an IPO, the order document clearly mentions the price range per security. Hence, it allows greater transparency in pricing and gives you access to the same information as large institutional investors.
This is not the case in the post-IPO scenario as the share prices depend on the changing market once the IPO process is over. In addition, your ability to offer the best price also determines the share price in the secondary market.
As per the SEBI guidelines, there needs to be an allocation of at least 35% of shares for retail investors. This gives a fair chance to small and retail investors to invest in the initial offering of shares by a company.
IPOs are equity-based securities, and they have constantly been growing in India. Hence, they have the potential to offer desired returns to help you meet your long-term financial goals.
The benefits of IPO investment mentioned above are some of the factors that lure investors to park their funds in these avenues. However, when choosing an IPO for optimal returns, you must consider a few factors.
This includes the company’s performance, financials, and future prospects. You also need to consider your risk tolerance and why the company is launching the IPO. This will help you assess whether it is the right investment decision. If not, you can opt for other instruments.
On Bajaj Markets, you can open a Demat account for free to enjoy these IPO benefits. It's a simple digital process with minimal costs, ensuring you make the most of funds without any hassles.
One of the biggest advantages of IPOs for companies is that they allow them to raise funds from the capital markets. They can channel these funds for the growth and expansion of their operations.
In addition to this, it provides an exit opportunity for the company’s founders as well as increases the brand’s equity.
An IPO is an ideal investment option for risk-tolerant investors as their performances are linked with market fluctuations. Hence, you can better reap the benefits of IPO investment if you have a higher risk appetite.
Before trying to invest in an IPO, open a Demat account first. This can easily be done online on Bajaj Markets at no additional cost.
An Initial Public Offering (IPO) is a medium for investors to buy shares of a private company going public for the first time. In this process, the company, in consultation with the investment bank, allots shares randomly to investors who participated in the subscription process. Then, the company uses the accumulated corpus for its growth.