The investment market offers a variety of options, and IPO is one such possibility. Whether you are new to investing or a seasoned player, IPOs offer a unique opportunity to invest in promising companies.
Initial Public Offering, as the name suggests, is an offer made to the public for the first time. But with great opportunity comes great risk. Hence, as an investor, it is wise to seek guidance from an experienced stock market advisory firm to make the right decision. In this blog, we shall discuss a few tips before investing in current IPOs.
Definition of IPO
An IPO, or Initial Public Offering, is the first public offering made by a private company. IPOs allow a private company to get publicly listed by selling a part of that company to investors. A company can raise capital from investors and enable public trading of its shares on stock exchanges.
This blog discusses the top 5 tips for selecting the right IPO for your investment portfolio.
5 Tips For IPO Investments
You can consider these 5 tips when investing in an IPO. Let us begin!
1. Do a Comprehensive Research
When it comes to investing in current IPOs, research plays a pivotal role. It is important to conduct thorough research about the company in every aspect. Companies going public may be famous or successful in certain aspects but more is needed to translate into successful fundamentals in the future.
However, in-depth research of fundamentals, past press reports, liabilities, and future prospects will offer you a better perspective on the deal.
2. Review The Red Herring Prospectus
A red herring prospectus is a handbook with collective information provided to the general public who show interest in investments. It contains substantial data like the company’s market potential, financial statements, current major shareholders, management team, etc. Before investing in the project, you must always review and thoroughly analyze this handbook.
3. Study the Company’s Objective
Another important content in the red herring prospectus is the IPO’s objective. The proceedings that the company receives are utilized for an objective. As an investor, you must know the objective of a company going public.
It is not considered a good sign if the company has raised an IPO to pay off its liabilities or repair the loss. You can be optimistic about the investment if the IPO proceedings are going toward the company’s development, growth, or expansion.
4. Ensure Strong Underwriters
Large investment banks act as underwriters. These entities offer services like evaluating financial statements, assessing risks, and analyzing the overall financial situation of the company undergoing IPO. When a company is associated with a reputed or strong underwriter, these reviews are deemed trustworthy.
It is a general assumption that a robust, principled underwriter’s verdict must be considered.
5. Watch for Lock-in Period
It is always a good practice to wait until the lock-in period ends. The lock-in period legally applies to existing shareholders and underwriters and ranges from 6 to 12 months. When the underwriters are allowed to sell their shares yet decide to hold onto those shares, it is a good sign!
If they sell the shares as soon as the lock-in period ends, it signals that things might go south. Watching for lock-in periods provides valuable insights into the demand and supply dynamics and investor sentiment surrounding a stock post-IPO.
Concluding Remarks
As an investor, you should make all investment decisions mindfully after conducting thorough research and determining your risk appetite. If you are looking for current IPO subscriptions to invest in, it is wise to consult SEBI-registered investment advisors. These experienced stock market advisory firms can provide insight into the IPO market and ensure precise investment decisions.
Reference links:
Tips for Investing in IPO to Beginners and Investors (upstox.com)
6 Tips for Investing in IPO | Kotak Securities
IPO Investment Tips: Know the Strategies for Investing in IPO (finology.in)
IPO Investment Strategy – Tips For Investing in IPO | 5paisa Market Guide
Investing in IPOs: 5 Tips & Things to Know (investopedia.com)
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