IPO or Initial Public Offering is a process by which a private company becomes public. A company becomes 'public' when it starts selling its shares in the market for the first time. Selling shares is like selling a portion of its stake to the investors for the company. There are two types of market
- Primary Market
- Secondary Market
IPOs are launched in the primary market.
Why does a company launch an IPO?
Companies use the IPO route to generate fresh equity capital for the company to further its business.
Who can invest in IPO?
Investors are divided into three main categories:
- Qualified institutional buyers (QIB)
- Mutual funds
- Domestic Financial Institutions: Banks, Financial Institutions and Insurance Companies
- Foreign Institutional Investors
- Individuals other than retail investors
What Happens after the IPO period?
Once the IPO subscription period is over, the shares are listed on the exchanges after a couple of days. After the listing, the shares are traded freely in the marketduring market hours.
What is the Process of Investing in an IPO Online?
- Choose the IPO that you qant to invest in
- Open the required accounts
Choose the IPO that you want to Invest in We generally know the latest IPO calendar of a particular year beforehand. Investing in an IPO requires research as we may not have a lot of historical data on the performance, management and other crucial fundamental factors. This is when we compare that company to a listed company. Hence, determining the IPO that you want to invest in is an essential first step. Every company that launches an IPO, shares a prospectus with the public offering details about the company’s business and future plans. Go through this prospectus thoroughly and research the company before making a decision.
You need the following three accounts to invest in a new IPO and trade them in the secondary market eventually:
- Demat Account: This is where you store your shares in an electronic form.
- Bank Account: A bank account is required to fund your share market transactions. However, a bank account can come in handy to apply for an IPO as well. Almost all net-banking platforms have the facility to apply for IPOs through the Application Supported by Blocked Amount (ASBA) facility.
- Trading Account: Trading account is used to buy and sell shares. You can open a trading account with AsthaTrade.
The process is a little different. When you apply for a company's IPO, regardless of any method of application, the aggregate amount gets blocked from your bank account. It will show up in your balance but will not be available for use. Once the allotment is finalised, if you have received the shares the amount will get debited from your account. If you have not received any shares in the IPO, the amount will be unblocked and will be available for use.
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