How do IPOs work for investors?

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While starting a company, we invest our money as capital or borrow it from friends. As it grows, we require more funds and apply for Loans from banks, investors, corporations, and venture capitalists. The last resort is raising money from the public for business expansion.

When a company offers its shares for the first time through Initial Public Offerings, the entire process carries out through the primary market. The company collects funds for growing the business or paying off heavy debts. An unlisted company becomes a part of the Stock Market this way.

Working

A company works tirelessly to get approval for an IPO granted by the Securities and Exchange Board of India, the regulatory authority. Long and arduous scrutiny by the regulatory authority determines its eligibility. File an application with them mentioning the number of shares issued, price, previous records, proposed usage of funds raised, etc.

After approval, the company issues a red herring prospectus with all the records and offering details. Contract a lead manager like an investment bank or brokerage for the sales. The lead manager solicits bids from investors. You subscribe to it when the IPO goes live and specify the investment amount. If successful, the shares get credited to your Demat Account.

Reasons

Every company aims to maximise profits for its stakeholders. They strive to ramp up their ability to trade and make greater profits to attain this objective. In this pursuit of growth, often, a company is constrained by bottlenecks, most commonly capital. They invite the public to buy its shares through IPOs.

Pre-requisites

Before investing in the Share Market or IPOs, you need to open a Demat Account, a secure place for storing your shares electronically. Shares allotted to you get directly deposited, and refunds get credited to your Bank Account. Online payments for bids conducted through the Application Supported by Blocked Amount process involve banks setting aside the bid amount from your Trading Account.

Why go online?

Online IPO investment methods facilitate bidding within minutes from home or office. The shares get automatically deposited in your Demat Account, enabling selling on the first trading day. If they open at a high price, you earn profit and vice-versa. It is a profitable move if you pick the right companies.

What next?

After the IPO, the company’s share values fluctuate as per the market’s perspective. You multiply your investment with the right pick or earn moderate returns from those performing moderately. For the best results, open a Demat Account online by visiting the Depository Participant’s website, clicking on the relevant tab, entering your name, email ID, mobile number, city, and OTP that you receive from the DP for verification.

Conclusion

Demat Accounts do not require a minimum share balance. You can hold more than one account linked to a single PAN Card with different DPs.