For investors who want to get their hands on a new and possibly profitable business, IPOs can be an interesting way to invest. This blog will show you how to apply for an IPO, what to expect, how to apply and the best ways to ensure your success.
Understanding IPOs
An IPO is when a private firm decides to become public, offering its shares to the public for the first time. This shift gives the company an opportunity to raise funds to expand, pay down debt or other commercial reasons. An IPO may offer an investor the opportunity to own a company early, perhaps before it is already well-known.
Why Invest in IPOs?
The temptation to buy an IPO is strong for many reasons:
- High Returns: There are many companies that see substantial price hikes after going public and provide early investors with the opportunity to earn a high return.
- New Access: IPOs offer investors the opportunity to access new businesses and industries that have not been available through other investment channels.
- Diversification: By including IPOs in your portfolio, you can diversify and minimize risk.
But you must understand that IPO investments are also risky, and involve market risks and underperformance.
Steps to Apply for an IPO
1. Research the IPO
In advance of filing for an IPO, it is essential to fully research the company and product. Go through the prospectus of the company and get information about its business, financial results, risk profile, and growth prospects. The main warning signs include:
- Health of the business (income, profits, and liabilities)
- Industry trends and competitive positioning
- Management and their experience.
Getting to know these things will let you decide whether or not to buy into the IPO.
2. Open a Demat and Trading Account
You need a Demat account and trading account with a licensed stockbroker to submit your application for an IPO in India. A Demat account stores your shares electronically and a trading account lets you buy and sell shares on the stock market. Look for a stockbroker that has an easy to use interface, low fees, and customer support.
3. Check IPO Details
Once you have a trading account, monitor the IPO announcements and details, including issue price, subscription dates, and allotment ratio. These are usually on the stock exchange’s website or at your stockbroker.
4. Apply Online or Offline
You can apply for an IPO through several methods:
Online Application
The majority of stockbrokers let you apply online for an IPO. Here’s how to do it:
- Access your trading account.
- Navigate to the IPO section.
- Click on the IPO you wish to submit for.
- Fill in the amount of shares you’d like to apply and the price (if applicable).
- Submit your application.
Once submitted, you will be notified and the funds will be frozen in your account for the IPO application.
Offline Application
If you’d rather apply offline, you can do so by submitting a paper IPO application form, which can be found at your stockbroker’s office or participating banks. Here’s how to proceed:
- Download the application form from your broker or bank.
- Fill in the form with the required data (username, shares, etc. ).
- Fill out the form and bring in a cheque or demand draft for the amount you are applying for.
5. Monitor Subscription Status
Once you’ve applied for the IPO, you can follow its subscription on the stock exchange’s website. This will give you an indication of how much the IPO is being asked for and if you will receive an allotment or not.
6. Allotment and Listing
The allotment is performed after the IPO subscription closes. The shares are distributed on a lottery basis if demand outstrips supply. You can access the allotment status via your broker’s site or the stock exchange’s website.
After confirming the allotment, the shares will be transferred into your Demat account and the company’s stock will go on the exchange. You can then buy your shares or keep them depending on how you want to use them.
Tips for Successful IPO Investing
- Apply Early: Apply when the IPO is opened for subscription. First-come-first-served applicants will get a chance at allotments.
- Be A Company You Know: Invest in companies whose products or services you already know. That will enable you to make informed decisions about their potential for growth.
- Multiply Your IPOs: Don’t invest everything in one IPO. Buying multiple IPOs can mitigate risk.
- Stay Connected: Keep up to date with the IPO news and updates. Keeping up with the market trends can help you find great investment prospects.
Conclusion
An IPO application is a wonderful investment but one that requires some research and consideration. Learn about the IPO process, find the right stockbroker, and apply strategically to boost your odds of getting shares in emerging startups. Just keep in mind that IPOs can be highly lucrative but there are risks involved so be careful.
The best investing experience comes by downloading the Pocketful app from the App Store. You’ll have access to our cutting edge trading platform, keep up to date with the latest IPOs, invest, and receive invaluable resources on one platform. Happy investing!
