what is IPO?

Initial Public Offerings (IPO):

IPO is a type of issue where an unlisted Company raise capital by making fresh issue of securities or offering its existing securities for sale to the public for the first time.”

what is ipo
what is ipo

Introduction

Econornic growth requires a capital investment. BankS are the primary source of capital for the firms. With the modernisation of Indian economy and capital constraints faced by the banks, significance of alternate source of raising capital through debt and equity have gained predominance.

Funds raising through public issue remains a principal route for financing business growth, without which the development of the Company is hindered. Majority of the Companies which has gone public has shown remarkable growth in performance and profitability. This article focuses on equity capital raised

Funds raising through public issue remains a principal route for financing business growth, without which the development of the Company is hindered. Majority of the Companies which has gone public has shown remarkable growth in performance and profitability. This article focuses on equity capital raised through Initial Public Offerings (IPOs).

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What is IPO? :

When a company wants to raise capital can do so by selling its shares to the public. Initial Public Offering (IPO) is the process by which Companies can go public by issuing new shares for the first time or existing shareholders sell part of their shareholding for the first time to the public

The Company offering its shares is called the Issuer and It could be either a new or old Company as well as can be big or small Company.

Once IPO is offered to the public, it is subsequently subscribed by the investors. The Company will receive money from the investors for the first time in exchange of shares. The investors, in return, expect a share of the Company’s future profits through dividends, and capital growth through stock price appreciation Post subscription period, the shares of the Company get listed on the stock exchange and are traded in the open market. Thus IPO represents an entry of a Company to the Stock Exchange.

Why do Companies go public? :

Companies raising money through IPO is said as Company going Public Smaller and newly incorporated Companies largely goes for IPO to expand its business while large privately owned Companies intend to become publicly traded through IPO. Going public is a strategic decision which provides long term solution to capital raising and business development. Further, capital raised through IPO neither involve any interest charge nor has to be repaid. There are many other benefits fora Company going public.

Advantages of going public :

Money raised through IPO can be utilised by the Company either for growth, expansion, acquisition, diversification, or even to meet its working capital requirements.

Increasing liquidity for equity holders Topay off existing debt International credibility and visibility Increase in market share Enabling cheaper access to capital Strengthening or Diversifying equity base Employee Motivation and retention through stock option .

What are the different types of Public Issue?

When a Company raises funds by selling or issuing its equity shares to the public through offer document it is called a public issue. Public Issues can further be classified into Initial public offer (IPO) and FurtherFollow on public offer (FPO).

what is ipo
what is ipo

Further Public Offer (FPO) Follow-on Public Offer (FPO)

When a listed Company wants additional capital, it makes either a fresh issue of securities or an offer for sale of existing securities to the public it is called a Follow on Public Offer (FPO).

Offer for Sale (OFS):

Institutional investors like venture funds, private equity funds etc. invest in a Company at its nascent stage.

Once the Company grows bigger these investors sell their shares to the public through the issue of offer documentand subsequentlyshares get listed on the stock exchange.

Offer for sale is also a special mechanism through which the promoters can sell their stake in the market. Only promoters or shareholders holding more than 10 percent of the share capital in a Company can come up with such an issue. Both retail and institutional investors can invest in an OFS and buy shares of the Company.

why an ipo? What are its benefits?

Companies come up with initial public offerings for various Funding and Non Funding Purpose. The primary reason of Comny going public via IPO is raising capital quickly from large number of investors. The Company utilise the funds raised through IPO for business expansion, research & development, or to meet its working capitalrequirement. The Company once gets listed, generate publicity and can further increase its business opportunities globally via mergers & acquisitions. Listed Companies always have an added advantage of being prestigious, which can also attract new talents by offering stock options.

How do its works ?

Who IPO works
Who IPO works

From the Investors point of view, IPOs are supposed to be undervalued and they can earn good profit in the short period of time frame. Companies tend to offer IPO at lower price in order to attract large number of investors. This encourages investors to subscribe foran IPO as a profitable investment.

Investments in IPO

By the way, the IPO is considered a risky investment, Because people do not have any data or information about the company’s progress.

But the IPO is a better option for the person who invests in the stock market for the first time. If you have to make a future in the stock market then you should know about the IPO.

Profit from IPO

Investment in IPOs is beneficial for new investors. By investing in IPO, a new investor can become a partner in their favorite business. There are also opportunities to earn profits in the IPO.

How to invest in an IPO

See Rating Agencies’ Ratings to Choose a Good IPO Ratings Agencies View the fundamentals of the company and give rating.

Also see the company’s good business along with the cost of the IPO. The broker’s report should also be looked at. See also the credibility of the promoters in the market and gather information about other investors.

The investment in IPO is done through the broker. Online IPO investment is also possible. The IPO opens only up to three working days. The company is listed within 7 days of the issue of IPO.

The application can be withdrawn before the investment allotment in the IPO. Can not withdraw application when allotment process begins. The allotment process is completed in 7 days.

Allotment is done through the lottery in the IPO. Often investors get less shares than the application.

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