Initial Public Offering (IPO)

What is an Initial Public Offering(IPO)?

IPO or Initial Public Offer means Initial Public offering. It is a process that allows the private company to turn into a publicly held company wherein it offers its securities to the public for sale for the first time. An IPO enables the company to list its name on the stock exchange.

In which market is the IPO launched?

Securities can be traded in either of the two markets i.e. primary or secondary. An IPO is launched in a primary market.

What is the purpose of offering an IPO?

Growth & expansion

The apparent reason behind issuing an IPO is to raise money for business expansion and growth. It is a direct opportunity for the public to invest in the primary market and become a company’s investor or stakeholder.

Credibility & acknowledgment

It is an effective way to enhance their credibility in the market. In addition, an IPO offers a large-scale public acknowledgment to the company where the public gets to learn about its operations and market presence.

Worth of the company

It is an apt way to know the worth of the company. It would open prospective opportunities for ventures & mergers to the company. It also enables public stakeholders and investors to know about the financials and growth prospects of the company. It would help them in making a decision on whether to invest or not.

Who is qualified to invest in an IPO?

Apart from individual investors, the following can also invest in an IPO:

What is a Red herring prospectus in an IPO?

If you are a new investor, the red herring prospectus may seem daunting to read. A red herring prospectus is a document drafted by the company, submitted & approved by SEBI, and issued to the public. It is a document that contains detailed information about the company’s plans and financials.

It includes how the company would use the received money from the IPO, its present shareholding pattern, probable risks associated, growth objectives, SWOT analysis for review, and many more. It is advised to study the financials and other important information about the company. It facilitates making the right investment decision.

How many types of IPO can be offered by companies?

There are two types of IPO offered by the issuing company. One is a Fixed Price offering and the other is a Book-building offering.

What is the role of an underwriter/ Investment bank in an IPO?

Underwriters are the expert(s), belonging to a financial organization, who are qualified to evaluate the risk of investors in any investment. They are hired by the IPO issuing company to raise investments by offering new securities. If you want to test the success probability of an IPO, check out the names of underwriters. If they are big and reputed then the chances of hitting success are more.

What is the meaning of the lock-up period?

A Lock-up period means a ‘duration of time’ during which the company’s personnel, management, and investors are not meant to sell their shares. It usually is declared when a company witnesses a downfall after the IPO goes public. As soon as the lock-up period ends, the share prices of that company on stock exchanges see a fall in their stock prices.

How to apply for an IPO?

If you are willing to invest in IPOs then keep in check the following vital things:

What to consider before staking money on an IPO?

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