What is IPO? Advantages and disadvantages and how to invest

The Full form of IPO is Initial Public Offering. In this article, we know what is IPO? How to invest in it, the advantages and disadvantages of IPO. So, To know still to this article until the end.

Investing in an IPO can be highly profitable or risky. It is when a company offers shares of stocks to the public. An IPO is a way, the owner of the company gives up part of their ownership to shareholders or stockholders.

What is IPO (Initial Public Offering)?

Initial Public Offering (IPO), is the first sale of shares or stocks by a privately owned company to the public. The companies raise funds from the public for paying loans, for expansion of the company, paying debts, and many more.

On the one hand, companies raise fund from public and on other public get the shares or stocks of those companies. The returns on investment are depended on the work of companies.

The investors can apply for IPO stocks by filling an application form given by the stockbrokers for free of cost. The investors can also apply for IPO stocks online through the online platform provided by stockbrokers like Zerodha, Up stock, ICICI bank, share khan, and many more.

Related:- Tips to invest in the stock market for beginners

Advantages and Disadvantages of investing in IPO

advantages and disadvantages of investing of IPO - mini invest

The advantages and Disadvantages of investing in IPO also means Pros and Cons of investing in it. Let’s see below,

Advantages of Investing in IPO

The golden opportunity of investments

The best company public offering can be a golden opportunity to invest in them. Because, Once it started trading on Exchange the price of stock or share can be increase.

But, It involves risk to invest directly in that company. If you know about that company closely and If you think the price of that company is reasonable or valuable then only invest time when IPO comes from that company.

In the case of Reliance, Maruti, Dmart, IRCTC, and many more, If we invested while the IPO, returns on investment have been very big. So, Do your own study while investing in IPO. If you think the company is good then invest in it, because It can be a golden opportunity to invest.

Liquidity

An IPO provides liquidity to the company’s founders, employees, and pre-IPO investors holding the company’s stock or share.

While the liquidity may not be immediately realized due to “lockup” requirements imposed by underwriters and other SEC rules, being a public company provides a means for the pre-IPO stockholders to monetize the worth of their stock at some point within the future.

Massive returns on investment

If you are successful in selecting the best company while providing the shares to public or IPO. Then you will get massive returns on investment.

Entering at early stages gives you the edge over other traders and investors who will enter after the stock is listed on the market. IPOs of certain companies performed very well in the market and gave stellar opening returns.

Get at the action early

By investing in an IPO, you can enter at the bottom of the company with high growth potential. It may also help you to grow your wealth in a short time with good returns.

Suppose, You invested in a young company that sells disruptive technology while IPO. If it manages the company and rake in profits, you would gain from its success too.

Archive long term goals

If you selected the best company stock or share while bottom price then you can archive the long-term goals. As mentioned earlier, IPOs of certain companies performed very well in the market and gave stellar opening returns, and After it covers more than 50% in 1 month.

I have personally seen such stocks. So, You get the best company stock in IPO at a cheap price then do invest in them. It can be very reward.

Related:- 11 factors that affects the stock market

Disadvantages of investing IPOs

Expensive and Time-Consuming

The initial public offering process requires a ton of work. It can occupy the company heads from their business. That can hurt benefits. They likewise should have an investment bank.

These investment firms are entrusted with directing the organization as it goes through the complexities of the IPO process. As anyone might expect, these organizations charge a heavy expense.

Suppose, If you think the price of offering is high then don’t invest in it. Do your own study and invest on your self.

May not be able to sell shares

The entrepreneurs will most likely be unable to take numerous offers for themselves. Now and again, the first financial investors may expect them to put all the cash over into the organization.

Regardless of whether they take their offers, they will most likely be unable to sell them for quite a long time. That’s because they could hurt the to k cost if they begin selling large blocks and investors would consider it to be an absence of trust in the business.

Over-Hyped

IPOs are dubbed as the safest and most beneficial way of investment. But, this is not the case every time. Time and again, IPOs fail to fulfill their pre-launch promises. Many times IPOs are over-hyped.

Such pre-launch promises intrigue investors to make big investments in the market. But when the IPO is listed on the market, many investors try to dump their stocks in the market to gain a profit.

Due to this reason, stock price tumbles down, forcing others to invest for the longer term.

How to invest in the IPO?

Process of investing in IPO - mini invest

Below are the steps to follow to invest in an IPO.

  • Firstly, select the right company’s IPOs to invest in them. Do your own study and analysis on it. Understand the company’s business plan, key strengths, performance to date, and purpose to decide wisely.
  • After, studying and get the perfect knowledge about it then you should have a Demat and trading account to apply for it ( If you don’t have this account then open it ).
  • Apply for it through your stockbroker. To apply through your trading account, you need to understand ASBA (Application Supported by Blocked Amount), which is an application that allows banks to block the money in your account at the time of placing bids for IPOs. 
  • The next step is to bid for it. Do bidding according to the list provided by the company.
  • Once the bidding is completed, depending on the investor’s reaction to the IPO, you will be allotted the shares.
  • Once you get a share you can enjoy the returns and gain on investment.

By following this steps you can invest in IPO.

Last word from mini invest

I hope you have understand about IPOs in detail. If you have any recommendations or feedback then you can leave it in the comment box below.

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