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IPO: INITIAL PUBLIC OFFERING IN INDIA

When the word IPO comes across we have many thoughts, are IPO worth investing, can IPO be applied through our broker, do IPOs always go up, how IPO price is decided, is IPO good or what IPO should I buy? Most common question we all have is how IPO works? And how IPO is allotted or how IPO is issued?

Well beginning with, what IPO stands for is initial public offering. We are not discussing in deep about when IPO will be listed etc. but the basic questions like when IPO will be allotted. Which IPO to buy or subscribe? Which IPO to apply?  In short How should you invest in IPO?

If you have questions like: What is IPO? How to Invest in IPO? You are at right place for the answers:

An initial public offering, or IPO, is the very first sale of stock issued by a company to the public. Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

Initial public offering (IPO) or stock market launch is a type of public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors; an IPO is underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock

An IPO (initial public offering) is referred to a flotation, which an issuer or a company proposes to the public in the form of ordinary stock or shares. They are generally offered by new and medium sized firms looking for funds to grow. However, it can be done by big privately-owned firms seeking to transform themselves into an openly traded firm.

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

If a brand new company or a company already in existence, but with no shares listed on the stock exchange, decides to invite the public to buy shares, it is called an Initial Public Offering (IPO).

It is the first time that it is approaching the public for money. That is why the company is also referred to as 'going public'.

The government of India has been playing proactive role in the real estate market by the commencement of the In an IPO the company may procure the support of the countersigned enterprise, which assists in establishing what kind of security to issue, competitive offering cost and the period in which it should be launched in market. An IPO can be an unsafe venture for it is tough for an investor to predict how the stock or share will perform on its first trading day and afterwards. Moreover, the historical information available with the company is not sufficient enough to analyze the performance of the stock in Indian market.

Most IPOs are of the firms that are undergoing through momentary growth duration, and they are hence entitled to auxiliary vagueness related to their future performance. While IPOs are effectual at raising revenues, being cataloged at a stock exchange demands immense authoritarian observance and treatment needs.

The Initial Public Offering assumes that the firm is a significant market presence, is flourishing and has the obligatory past record to raise assets in public equity market. If the firm later trades recently tendered shares once again to the equity market, it is known as seasoned equity offering. When an investor trades shares, it is referred to as secondary offering and the investor and not the firm that has initially proposed the shares, maintains the advances of the offering. These phases are usually perplexes and only a firm which proposes a share can indulge in chief offering or the IPOs. Secondary offering takes place in a secondary equity market, where investors and not the firm purchase and trade from one another.

How IPO works?

The IPO method begins when the business lodges a registration declaration in accordance with SEC and as per the Securities Act of 1933. The SEC then studies the listing declaration and supports the entire revelation. The sponsor then proposes a prelude brochure and then an authorized catalog prior to the share offering. After the SEC endorsement, the value and time of the IPO are determined. As investing in an IPO is an uncertain and tentative endowment, only active merchants relying on their endowment motives and risk forbearance, should opt for such kind of endowment.

Applying for an IPO:

Buying from the primary market means that you buy them directly from companies when they make new issues of shares or come out with IPOs. You can also get rights issues and bonus shares, but more on that later.

If you want the shares of a company that is already listed, you can buy them from the Stock Exchange through brokers. This is called buying from the secondary market.

Get an application form

You can pick up the application forms at any broker's office - they are even available on some street kiosks in your city's financial area.
The forms are all free.

Fill up the form -- the directions are given in the form -- and write a cheque for the amount you want to apply for. Every issue has a minimum number of shares that you must apply for, which is specified in the application form.

Submit both within the time frame specified.

Submit the form: You will have to submit it to the collecting bankers (a list is given in the form), or to the collecting agents for the merchant bankers (financial players managing the entire issue for the company) to the issue.

You can buy online too: If you have trading accounts with online brokerages, you can apply online.

The process is simple, and detailed instructions are available on these brokers' web sites about how to proceed at every step.

Typically, you have to go the site and click on Open IPO, where you will get the list of IPOs open for application. Once you select an issue, you will be directed to the Applications page, where the form can be filled in and submitted online.

The trouble is, there are usually plenty of applicants for good IPOs.

And they are heavily oversubscribed (the demand for the number of shares is more than the number being offered for sale).

And although 25% of the issue has to be reserved mandatorily for the retail investor (those who apply for shares of a value less than Rs 50,000), even the retail portion is oversubscribed several times for good issues.

In this scenario, lots are drawn and only a few individuals are allotted shares.

Hence, you may not get the number of shares you asked for. There is also a chance that you may also not get an allotment at all, in which case your money will be returned to you.

If you don't get any shares, your money will be returned to you within 21 days. This is true even if you get partial allotment (you get only some of the shares you applied for), and the extra money you have paid is returned.

If you do get an allotment, your demat account will be credited with the shares. Once the shares are listed, you can sell them in the market and pocket the gains.

Of course, you can also hold your shares for the long term if you want, but most people opt out if the price on listing is well above the price at which you were allotted the stocks. Remember, you need to have a demat account before applying for IPOs. Else your form will be rejected.

When a firm proposes a public issue or IPO, it offers forms for submission to be filled by the shareholders. Public shares can be bought for a limited period only and as per the law, any IPO should be traded openly only for minimum 3 days and 21 days maximum. For offers that are sponsored by financial institutions, the proposal should be traded for maximum 21 days and minimum 3 days.

For offers that are sponsored by India financial institutions, the proposal should be traded for maximum 10 days. The submission form should be duly filled up and submitted by cash, cheque or DD prior to the closing date, in accordance with the guidelines mentioned in the form. IPO's by investment firms generally entail countersigned charges which signify a load to purchasers.

Things to consider before applying for IPOs:

There are certain factors which need to be taken into consideration before applying for Initial Public Offerings in India. They are:

  • Promoters, their reliability and past records
  • Firm producing or facilitating services
  • Product offered by the firm and its potential
  • Whether the firm has entered into a collaboration with technological firm
  • Status of the associates
  • Historical record of the firm providing the Initial Public Offerings
  • Project value and various techniques of sponsoring the plan
  • Productivity estimates of the project
  • Risk aspects engaged in the execution of the plan
  • Authority that has reviewed the plan

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