IPO investments can help build a strong portfolio and earn high returns in the future. Since more and more companies are going public in India, many investment opportunities exist. Many profit-making companies in India are expected to launch their IPOs in the coming years. New investors must know why and how to invest in IPOs. Let us discuss the pros of investing in Indian IPOs.
IPO Meaning
When a private company in India decides to transform into a publicly traded entity, it embarks on the journey of launching an Initial Public Offering (IPO). This pivotal process marks the company’s transition from a privately held entity, with shares primarily owned by insiders and promoters, to a publicly accessible entity. An IPO unfolds over several days, during which investors eagerly apply for shares in the offering. The company, now undergoing this transformation, offers its shares to the public for the very first time. Prospective investors keenly submit their IPO applications, awaiting the critical allotment phase when shares are distributed among them once the IPO concludes.
The initiation of an IPO in India hinges on approval from the Securities and Exchange Board of India (SEBI). A company typically initiates this journey by enlisting the services of underwriters, typically investment banks, responsible for conducting price and market analyses and assisting throughout the IPO process. Investors receive notifications concerning the IPO’s date, share price, price band, and other pertinent details, enabling them to make informed decisions. To gain a deeper insight into the company’s objectives, operations, and strategies, investors can peruse the Draft Red Herring Prospectus (DRHP). As the IPO officially kicks off, investors can seamlessly submit their applications through a trading platform, marking the beginning of their investment journey in the newly public enterprise.
Why Invest in IPOs to Build a Strong Portfolio?
Now that you understand the meaning of initial public offerings, here are the pros of IPO investments in India:
Early Entry in Public Companies
Companies become public entities by launching their IPOs. It means you can get an early entry into a public company as an investor. As the company’s market cap increases, the value of shares will increase. You can earn high returns by selling the shares of the public company. Not to forget, you will be among the first few investors of the company by investing in its IPO.
Robust Allotment Process
You don’t have to stand in queues to get an IPO allotment. Once an IPO closes, the issuer allots shares to different investors. Investors who applied for the IPO during the subscription period are considered for allotment. Once you are approved, the shares are directly transferred to the Demat account. A Demat account can hold IPO shares in digital form, thus reducing the need for physical certificates. Demat account charges are much less than the cost of maintaining physical certificates throughout the holding period.
Potential for Capital Appreciation
Stock investment can help earn multi-fold returns in India. As the value of the shares grows, your portfolio value also increases. You can invest in a company with huge potential via IPO. As the company enhances its financial performance, the portfolio value will grow.
High Liquidity
IPO investments are liquid. When a company goes public by launching an IPO, its shares are available on stock exchanges for trading. You can sell the shares purchased in the IPO on stock exchanges to make a profit whenever you feel like it. Similarly, you can purchase more company shares from stock exchanges.
Dividend Income
Many public companies in India offer dividends to their shareholders. A dividend is a part of the profit made by the company. You can stand a chance to get dividends by investing in a company’s IPO.
Conclusion
IPO investments can help you achieve your financial goals. You can earn multi-fold returns by purchasing shares of a company in its IPO. Not to forget, you might get dividends or bonus issues at regular intervals. Choose a new reputable IPO and invest now!
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