What is IPO and How Can You Invest in it?

Know what is an IPO (Initial Public Offering), and how it offers a smart investment option. Here is a comprehensive guide to understand IPO that will help you open gates for this investment option.

Nidhi Gupta
Jul 27, 2021, 19:03 IST
IPO - Smart Investing Option
IPO - Smart Investing Option

Get complete information about the inside-out of the stock market, where an IPO is launched. It is so because when it comes to earning a profit, an investor often looks for options that let them mint quick and abundant money in less time. Others search for diverse options of investment so that dependency on the profit and loss of a single option is reduced. On the flip side, a smart investor is the one whose first and foremost reflex is to enquire about all the available sources of investments, weigh their pros and cons, and then accordingly choose the best possible alternative that aligns the needs of personal saving pattern and expectations of reaping profits in future.  

An IPO (Initial Public Offering) is a lucrative option for a private company to raise money from the general public and in return offers then ownership in decision marking and other affairs of public interest. Organisations generally launch IPO for the projects that have the potential to provide a valuable product or service along with generating profits for the investors/stakeholders. For many companies, IPOs are the only way to raise money to meet the financial requirements of business expansion.

SEBI is the regulatory body that takes care of the smooth operations, funding, malpractices, in the stock-trading domain.

So read on to find out what makes IPO an apt choice to become a smart investor.

Types of IPOs

Take a look at several types of IPOs in which an investor can invest. Read on to find out that when a company launches an IPO, it caters to which demand.  

New Offer

When a company raises capital for the first time and gets listed on the stock exchange, such an IPO is called a new offer. The aim of the New Offer is to expand the shareholder base of the company and raise finances to expand the business.

Follow-On Offer

In this case, the company whose shares are already being traded on the stock exchange aims to raise additional funds to diversify the business furthermore.

Offer for Sale

This IPO is generally launched when the promoters and key investors sell/disinvest a stake of the company to a potential buyer in the market. Often Government entities launch Offer for Sale for most of the disinvestments projects.

Types of Investors

Now that you have gained a fair idea about the types of IPOs being launched in the market, it is equally important to understand the types of investors that deal in the IPO market.

Retail Investors

When a common man decides to participate in the stock market and invest their money in IPO and other holdings, he/she is categorized as a Retail Investor. SEBI encourages the active participation of retail investors and ensures that maximum allotment comes under this category when an IPO is launched.

HNI Investors

These are basically high Networth Investors who buy a huge chunk of shares when the allotment of shares in an IPO issue is proportional.

Institutional Investors

When the companies invest in the company launching an IPO, as per the discretion of SEBI.

Who can Invest?

An adult capable of entering into a legal contract and meets the following eligibility criteria:-

  • An individual should carry a PAN card issued by the Income Tax department of the country.
  • Should carry a valid DMAT account.

Why an IPO?

Know why IPO makes one of the smart investment options in current times for you:-

IPO allotment is Easily Available: If you come under the retail quota of an IPO, there is a better chance to get an IPO allotment. Therefore, the easy availability option is a good reason to apply for IPO because SEBI promotes and delivers a conducive environment for retail investors to apply for IPOs.  

Wealth Generation: The thumb rule of investing in an IPO is that when a company grows, even your investment grows. Therefore, carefully read financial standing along with the aims and objectives of the company before investing and if you invest for a longer period of time, you can invest in an IPO.  

Availability of Discounts: It should be noted that IPOs offer a discount to retail investors. And this discount attracts a lot of retail investors to apply for IPO.  

Safe investment option: Generally SEBI issues the permission to launch an IPO to those organisations after reviewing their operations, financial data, and other important statistics.

Popular IPOs of 2021

Zomato IPO

Zomato, the online food delivery platform has finally clocked in its first initial public offering (IPO), and no wonder the issue has been subscribed 4.79 times (retail investors) by the end of the second day, making it the biggest IPO opener of the year. The subscription is available from July 14, 2021, to July 16, 2021, and the Zomato share is priced between INR 72-76 per share.  With this IPO, the aim of the organization is to raise around Rs. 9,375 crores.          


*Disclaimer - The information provided above is only for information purposes to spread financial knowledge and enhance literacy among our readers. It shouldn’t be taken as financial advice by anyone.

Continue reading our personal finance section to know more details about the IPO and how it operates, and how you can invest in an IPO to become a smart investor. Subscribe to Jagranjosh.com to receive personal finance tips to manage your investments smartly.  

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