IPO stands for Initial Public Offering. The first time a private company sells its shares, it is called an IPO. Private companies not listed on the stock exchange cannot sell shares directly. Through an IPO, a private company enters the stock market and sells shares. When a private company enters the stock market, it is a public company.
What is an IPO?
Some companies are bringing IPOs, some companies are subscribing to IPOs so many times. It is often heard and read. So what exactly is an IPO?
In short, the process of a private company becoming a public limited company is called ‘initial public offering’ (IPO).
All in all, now that their industry is growing, it needs financial support to expand further. The company now has the following options.
- Borrowing Money from a Bank: In which interest has to be paid.
- Finding Investors: But in this they will have to decide the share or return in advance and pay the return as agreed then the performance of the company will be good or bad, in short there will be repression.
- Bringing IPO of the company: It involves raising capital from the people and distributing company shares to them according to their investment. That is to divide the ownership of the company among these investors.
Note: When a company launches an IPO, it announces the total amount of capital you will raise through the IPO and the number of shares that will be distributed accordingly. That is, for example, business growth, an ambitious project, or even debt repayment.
What are the Types of IPO?
In a fixed price issue IPO, the price of the shares is fixed in advance, so the investor can decide to invest in the issue by looking at the price, and in the second case, the price is determined by inviting the investor to determine the amount of investment and how many shares you are applying for Mention then the floor price and cap price according to the maximum and minimum bid and then the issue price is fixed by the company.
IPO Procedure
The IPO is usually open for three days to apply, during which time it is possible to know what percentage or fold of the IPO is subscribed per day. When applying for an IPO, one has to do it in lot size, i.e. there can be one lot of 20, 30, 50 shares, the price of one lot is usually between 13 to 15 thousand.
Applying for an IPO does not necessarily mean that you will receive the shares, as how many people will receive the issue depends on how many times the IPO is subscribed. Also, the allotment of IPO issues (shares) is done in a completely computerized manner. The issue allotment takes place within four to five days after the application deadline, you receive it in the demat account.
About 4 to 6 days after allotment, the IPO is listed on the stock exchange, i.e. it is open for sale in the secondary market.
Note: IPO is the primary market and the actual stock exchange is the secondary market.
There is another type of FPO similar to IPO in which a company already listed in the stock market wants to distribute additional shares in the stock market to raise capital. There are some differences between FPO & IPO.
- A company wants to raise capital by listing its shares in the stock market has to seek permission from SEBI (Securities and Exchange Board of India) as well as other institutions.
- The company has to publish all the information of the company and advertisement. An IPO advertisement should provide information about the financial position of the company.
- The company sets a three-day period for investors to online application. The company uses a lottery method to distribute the shares and shares are credited to the investor’s demat account.
- All refunds are made to those who did not receive shares from the IPO.
- The company is listed on the stock market a few days after the share allotment process.
IPO For Business Growth
Many changes and efforts are made to grow a business Such as staff, space, facilities and others. Capital / money is required for business growth. In order to increase the income of any business, the capital required for production has to be increased. Private companies register the stock market to raise capital so that some shares can be sold. Capital is gained by selling shares and investing it in business growth.
Fewer people invest in a small business / company and these results in lower returns. However, when the business is listed on the stock exchange, the general public can also take part in the business. Anyone can invest by buying shares. It benefits both the business and the investor.
There is also the option of a bank loan to raise capital. If the company takes a loan, the money has to be repaid to the banks according to the interest rate. Whether the company’s income increases or decreases or the company gains or loses, the company has to repay the interest on the loans taken by the banks. In the stock market, on the other hand, investments and returns are made in the form of profit / loss.
SEBI Rules for IPO
The company is assessed before the Initial public offer sale is taken out and the credit is also checked. This is checked for what the share price should be, what percentage of the capital to withdraw, the auction method. Also, it is mandatory to process Initial public offer as per the rules of SEBI (Securities and Exchange Board of India).
The concerned company has to submit all the relevant information to SEBI. Even after being listed on the stock exchange, it is mandatory to abide by the terms and conditions of SEBI. SEBI is a government body under the purview of the Union Ministry of Finance. It works to control the capital market.
An individual can directly buys shares of the company though IPO. All he needs is a Demat account. Initial public offer is open for a minimum of three days and a maximum of ten days after the announcement. More people are willing to invest in it, so it is not easy to get shares. It takes a little effort to get shares.
Benefits
- It is a kind of lottery. You can make a huge profit in a very short period of time and with very little risk. sometimes investors’ money has doubled in just few days.
- Big money can be made in the stock market in a very short period of time. But it requires luck, not everyone gets a share in the IPO because the IPO is distributed through a lottery.
- Investors have often suffered huge losses as well. So it is important to take all the information when investing in any IPO.
Conclusion
The stock market is the preferred way to make a long term profit by investing money in a company / business. An investment made through an IPO sometimes yields a huge return on the listing day. The number of investors in the stock market has been increasing over the last five years. Relevant knowledge is required to invest in the stock market.
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