For any company that opts to go public, that is, from a private entity to a public listed firm, it has to introduce an IPO. This is an initial public offering in which shares of the company, previously exclusively held by founders and a few individuals, are offered to the general public for investment. Floating an IPO is undertaken by a company in order for it to expand and grow. Such companies typically show promise of good growth potential and one of these, coming up with an IPO soon, is the Life Insurance Company of India or LIC. To invest your wealth in an IPO, you should know about certain processes that companies go through right from the stage of application to the listing of the IPO on an exchange.
Initially, when any given business decides to go the public way, it appoints certain financial experts (bankers/underwriters) to undertake the IPO process on its behalf. These are essentially intermediaries between investors and the given company. Certain documents are prepared by the company with the help of underwriters, and these are mandatory for the company to issue an IPO. Some of these documents are the Red Herring Prospectus and the Registration Statement.
The Red Herring Prospectus is important as it contains information about the company and its business. This can be accessed by retail investors and decisions can be made to invest in the company. All the required documentation from a company is to be submitted to the Securities and Exchange Board of India (SEBI) for a factual review. On your part, if you are an investor who wishes to invest in any given upcoming IPO, the initial thing for you to do is to open a Demat account.
Getting Into Action
When an IPO is about to be offered to the public for investment in its shares, it has to create enough publicity, so to speak, so that investors’ curiosity and interest is pique. Before investors undertake an IPO application, they have to be convinced enough to invest in shares of the company offering the IPO. Once the IPO has obtained all the required official approvals to go ahead and be offered, the investment bankers and underwriters get underway with the process of increasing awareness about the IPO. Once this is done, a launch date is fixed, and the IPO is set to come on the market for investors to invest in.
Through any given IPO, a set number of shares of a certain value are allotted to members of the public. You, the investor, may want a specific number allotted to you, but this is as per the discretion of the company allotting the shares. Depending on the company that is about to float an IPO, there are two ways in which shares become allotted to retail investors. In an issue with a ‘fixed price’, allotted shares which have to be sold have a set value and this is made known to investors in advance. However, in an issue which is a ‘book building issue’, the company offers the investor a 20% range. It is within such a range that investors must bid for the amount of shares they want. The 20% range is known as an IPO price band.
Applying for an IPO
You can apply for an IPO once the IPO is launched officially. You can do so through your bank or brokerage and this usually entails you filling up an application form with your Demat account details. You may get around 3-5 days to submit your application for an IPO, but the sooner you apply the better. This increases your chances for the allotment of shares. After the date of closing of an IPO, usually six days, the company gets listed officially on the stock exchange.
Diversify with an IPO Investment
It is very easy to open a Demat account online with a reliable broker like Motilal Oswal. You also get updates about the latest upcoming IPOs to invest in, making you ready to invest and diversify your monetary portfolio in a useful way.