There are many investment options which give higher returns but come with added risk factors. On the other hand, there are many investment options which are safe but provide lower returns. Although there are many investment options available, with new ones being introduced often, investors with huge risk appetites turn to stocks. Apart from the secondary market, it is the primary market, i.e. Initial Public Offering by companies which have also seen huge success.
What is an IPO?
Some companies approach the public for funding and invite them to be the part owners of the company. They achieve this by selling the company’s stocks to the public. This way they ensure the money flow too. When a new or old company sells its stocks to the public for the first time, it is called an Initial Public Offering, IPO. Many companies go public for expanding their business. The company’s stocks get listed on the stock exchange where they can be traded further. Many investors tend to restrict themselves from investing in IPOs because of the risk factors associated with an unknown company. However, the company grades given to the offer can give them an idea about the potential of the stock.
Fundamentals for investing in an IPO
There are many rules that an investors must be acquainted with before investing in an IPO. All the companies release their shares in electronic form. So, there are no physical shares to buy and store. Thus arises the need of opening a Dematerialized or Demat Account. When they invest in an IPO, shares are credited to the Demat Account and transactions take place from there.
Steps to invest in an IPO
- Open a Demat Account first with a Depository Participant. A broking firm can work as your Depository Participant. You need to pay a joining fee and submit your identity and address proof for verification.
- You will need to fill up an IPO application form, which you can download from the internet. You can also ask your Depository Participant for a form.
- As the company with the IPO is new, you must conduct thorough research on it before investing. Find out their financial position, past records and any other information that is available to you. Read the company brochure carefully.
- The form must be filled by following the instructions given in it. You can ask the Depository Participant for assistance. However, doing it yourself is recommended.
- The form can be submitted online as the entire process is supported online. You can even submit it to the merchant bankers handling the issue.