Is investing in IPO for you? Why should you invest in IPO?


Initial public offerings (IPOs) usually prompt retail investors to invest in emerging companies so that they could get an opportunity to buy at a reasonable starting price and earn profits over short or long term. The IPOs of companies with healthy fundamentals usually get oversubscribed in a short span of time as the share price could grow multiple folds in most cases. That is why you should invest in an IPO to become a shareholder of a promising enterprise.

Why invest in an IPO?

As per a June 2021 report by Economic Times, in the year 2022, the Indian stock market today is likely to surpass the previous high of around $11 billion, which was generated through IPOs in 2018. The founder of Prime Database, a database management company, was quoted making this prediction based on the number of companies that have and are expected to file for IPO approvals.

From an investor point of view, investing in an IPO helps you to understand the whole exchange listing process and also gives you an opportunity to know the company’s business very well through the IPO documents. Grasping what an IPO is and why corporations raise funds through it is crucial to this process. Private firms take a listing route to cash in their stake by selling their shares to the public through exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Then, a company goes public by getting listed on the stock exchanges.

By issuing an IPO, a company raises money from the public via share market. An IPO could also be your gateway to garner quick profits. If you hold on to the shares, it may also increase your wealth in the long term.

Why should investors buy IPO shares?

Shareholders can become investors of an organisation and own privileges by putting resources into an IPO. The investors likewise become qualified for getting profits and bonuses, in the form of dividends, dependent on the organisation’s financial performance.

Share values are generally known to give comparatively significant yields than other asset classes, and investors can build their portfolio by putting resources into shares available through IPOs. Consequently, an IPO gives a chance to pick stocks in a firm with robust fundamentals, whose share prices can increase in value over the period.

What are the benefits of investing in IPOs?

Buying an IPO is an equity investment. So, it usually has immense potential to yield good returns in the long run. The amount earned could improve your financial freedom, and you could reach your long-term financial goals, such as early retirement or owning your dream house.

Moreover, many renowned Indian start-ups have been opting for IPOs, with quite a few being under the process for approval at present, as of mid-2021.

More share price clarity: The price per share issued during an IPO is clearly documented and scrutinised by the Securities and Exchange Board of India (SEBI). You can easily access these documents through SEBI, as they are publicly available.

However, this price may change in the post-listing stage as big investors and brokerages influence market sentiments by providing price targets. This may ignite a positive or sometimes negative sentiment among shareholders.

Minimum price IPO and maximum earnings: The IPO prices are usually set at a lower range to attract more investors, and if you buy in a start-up firm that has a bright future, there is a chance to earn big. Reaching out to a financial advisor could help you with bespoke financial plans so that you know where, when and how often to invest in stock market. Get in touch with experts today to get an investment plan that understands your needs and risk appetite.