Last updated on October 30, 2022
A Brief Overview – Unpacking Initial Public Offerings
An initial public offering (or IPO) serves as the process by which a private corporation issues shares to the public in the form of new stock issuance. An IPO can prove to be a smart investment strategy for those who are able to keep tabs on potentially high-growth companies that seek to go public via IPOs. Learn more about topics such as IPOs, on the Angel One website which provides insight into the markets and explains varied financial topics in a manner that is easy to understand. Before we begin to unpack the merits associated with investing in an IPO though, understand how to invest in an IPO.
Investing in an IPO with a Demat Account
By opening a demat account – which can be created for free with the Angel iTrade PRIME plan – you can apply to invest in any company’s IPO once it is made available in the stock markets. Creating a demat account on this platform is particularly beneficial as investors incur zero brokerage fees for equity delivery while a modest INR 20 brokerage is charged for intraday trades. The process is hassle-free and there exist no hidden charges.
IPOs as a Smart Investment Strategy
Avail of early-bird advantages – If you invest in a company’s IPO stocks, you stand to potentially benefit from the company’s growth and expansion endeavours over the long term. To put things into perspective, consider Amazon’s IPO stock of 1997 which valued each share at USD 18. Fast forward to January 2022 and each share now amounts to over USD 3,3001.
Make the most of discounted prices – Several companies tend to offer their new stock issuance via an IPO at the lowest price possible owing to the fact that at the time of their IPO they are often small and under-the-radar companies. Once such a company begins to grow, however, its share prices can potentially move upwards at a rapid pace. If this occurs, investors in the company’s initial IPO that have held on to their stock can stand to generate returns on their holdings.
Take advantage of the information available – Provided a company is approved to float an IPO, it means that they have been adequately vetted by the Securities and Exchange Board of India. Not only is this stamp of approval provided, but the SEBI also requires such companies to disclose adequate information pertaining to the company in a detailed prospectus. This document reports the company’s previous performance, its assets and liabilities, the risks it faces, its growth thus far, plans for the future and its financial status. This information is particularly useful as it permits investors to make smart, educated decisions.
IPOs often have massive momentum which can trigger considerable growth – When a company decides to go public via an IPO they often attract the attention of several investors with deep pockets and gain exposure via the media and PR endeavours. This momentum helps increase the hype surrounding their stocks which can in turn lead to considerable growth.
A Word of Caution
As examined above, IPOs have the potential to be smart investments that can reap returns over the long term. That being said, it is important not to get swayed by the IPO frenzy either. It is pertinent that you put in adequate amounts of time into researching a company, understanding factors that influence it and read up reports such as those prepared by Angel One. These reports provide interesting insights into a company and help you assess it using a microscopic lens.
1The securities quoted are exemplary and are not recommended and “such representations are not indicative of future results
1Amazon Share Price: https://finance.yahoo.com/quote/AMZN/history/