An IPO or Initial Public Offering is the first time shares of a private company are made available to the public. This means that any investor can invest in the company and become a part owner. They can also make money if the stock price appreciates over time, By going public, the company can generate funds that can be utilised to expand the business, invest in research and development, pay off debts, or pursue other growth opportunities. Investors need to be aware of the risks involved in IPO investments before deciding to invest.
Investing in an IPO in India - An opportunity or risk
In recent years, India has witnessed a surge in the number of start-ups, which has led to increased self-reliance in the country. This trend has opened up substantial opportunities for investors to make profits by investing in these companies through IPOs. These initial public offerings enable investors to grow alongside the company and offer the company a chance to raise capital for its operations.
One significant benefit of IPOs is that investors gain access to all information about the company, including its profits, upcoming board meetings, projections, and more. As shareholders, investors can access both public and non-public information pertaining to the company. Apart from this, investors can also better understand the industry by investing in these companies.
Investing in a company involves risks, as the profits and growth of a company may fluctuate unexpectedly. Therefore, it is important to conduct thorough research and analysis before making a significant investment.
Should you consider investing in an IPO in India?
When investors buy initial securities, it allows them to invest in a company at a stage when not all assets have been fully valued. This presents an opportunity for the investor to potentially earn higher profits in the future as the company grows.
Moreover, Indian investors are often enthusiastic about investing in new and innovative ventures, especially if it aligns with their passions or interests. This makes it a favourable option for them to invest in a company that shares their vision or operates in an industry they are passionate about.
How to benefit from investing in an IPO?
Below are some benefits of IPO:
1. Long-term investment
Investing in an initial public offering means that you are investing in the growth of a company for the long term. This is not only a monetary investment but also an investment of your time.
2. Steady profits
If the company keeps growing, you can earn steady profits in the long term, even if you only own a few shares. You can also trade the IPO on the marketplace like any other share.
3. Earn profits
As a shareholder, you can earn profits at a lower risk and high returns. If the company does well, you can get a good resale value for your shares, or you can choose to keep them and see where the company takes you in the future.
4. Company growth is your growth
Investing in an IPO allows you to experience the growth and improvements of the company, and you can take pride in having made a good investment at the right time.
5. Earn dividends
As an investor, you can earn dividends on your shares annually, depending on the company's profits.
6. Capital appreciation
Lastly, when the company performs well, investors can also benefit from capital appreciation as the stock prices increase significantly from the time of purchase. This makes investing in stocks a viable option for those looking to secure both short-term and long-term financial gains.
Benefits of IPO that apply to both investors and companies
Here are some of the benefits of IPOs for investors as well as the companies going public in India:
1. Diversification
Investing in an IPO gives an investor the chance to broaden their portfolio by investing in a diverse range of companies through smaller shares. For the company, this also means a diverse group of investors, as shares are traded on an exchange, ensuring that no single investor ends up with a majority.
2. Liquidity
After going public, an investor has the right to sell their shares on the open market without the need for repurchasing. This means the shares purchased have high liquidity—another key advantage of IPO for investors.
3. Raise money
A company can raise capital by going public without worrying about taking high-interest loans. SEBI guidelines dictate that a company can raise up to 20% of its finances through this method, which is beneficial for both parties.
4. Brand equity
Going public helps a company build trust and gain the confidence of its consumers and investors. The public can track the product or service and its growth, resulting in profits for the company and individual investors.
5. Capital markets access
Going public gives companies greater access to capital than they would have through private sources. Exchanges are in the open market and involve brokers, financial intermediaries, and individual investors.
6. Perspective
Going public gives a company an outsider perspective and makes it more transparent for its investors. Investors can invest in the company's growth and business strategies as there is open communication.
How can you reap the advantages of IPO?
Investing in an IPO (Initial Public Offering) can provide significant advantages. One of the main benefits is that you can buy shares at a potentially lower price before they get listed on the stock exchange, which offers opportunities for early gains.
Moreover, as companies go public to raise funds, investors can participate in these growth journeys, especially if the company has high growth potential.
IPOs also allow you to diversify your portfolio by adding newer stocks. Long-term investors may benefit from price appreciation and compounding returns as the company matures and performs well.
Wrapping up
IPOs are a popular way for companies to raise funds without resorting to costly bank loans or high-interest financial institution loans. By issuing shares to the public, companies can generate capital that can be used for various purposes, such as expansion, research and development, and debt repayment.
The benefits of IPOs are manifold; investing in IPOs can be advantageous for individual investors, as they can grow their wealth alongside the company and avoid incurring capital gains tax. Overall, IPOs provide a win-win situation for both companies and investors.
