Going public through an ipo is a major event in the life of a company. In this blog, we’ll discuss some basic information about what is ipo and how to apply for this through a broker.
“An investment in knowledge pays the best interest.” — Benjamin Franklin
List of contents
- What is ipo
- Requirement of ipo
- Category of investor who invests in an ipo
- Allotment quota in an ipo
- Why should you invest in an ipo?
- What are the requirements for applying for an ipo?
- What are the steps to follow to apply for an ipo through stock broker?
- Conclusion
Read also: Sovereign gold bond
What is ipo?
Initial Public Offering, is the process by which a private company offers shares of its stock to the public for the first time, in order to raise capital and become a publicly traded company.
In a private company, the company’s entire share (100%) is held by its owner(s) or stakeholder(s). When the decision is made by the company owner(s) to take the company public for a certain reason, they approach stock exchanges like the BSE or NSE to list their company.
Requirement of an ipo
For a variety of reasons, businesses require funds, which is why they file for an IPO.
- Expansion:- Going public can provide a company with the capital it needs to fund growth initiatives and expand its business and capacity. By issuing shares to the public, a company can raise a significant sum of money that can be used to invest in various new projects. This can help the company increase revenue and profitability over time.
- Paying off old debt: – Sometimes a company may have significant debt. It needs to pay off to continue growing and keep focusing on its core business. going public can help the company raise funds to reduce debt and interest expenses.
- Providing an exit for early investors:- A private company’s early investors may be looking for a way to take their profits and exit the company. going public can provide an opportunity for these investors to sell their shares on the public market and realize a return on their investment.
Category of investor who invests in an ipo
There are four types of categories, including
1) Qualified institutional buyer (QIB):- These are typically large financial institutions such as mutual funds, insurance companies, banks, foreign institutional investors (FII), provident fund and pension funds.
2) Non-institutional investor (NNI):- Who invests more than 2 lakhs, ex High net-worth individuals (HNI), hindu undivided families (HUF), corporate
3) Retail individual investor (RII):- who invests less than 2 lakh
4) Reserved:- Employees of the company
Allotment quota in an IPO
| Category | Fixed - price issue | Book building issue |
|---|---|---|
| Retail individual investor (RII) | Maximum 50% | Minimum 35% |
| Non institutional investor (NNI) | Remaining | Minimum 15% |
| Qualified institutional buyer (QIB) | Maximum 50% |
Why should you invest in an ipo?
Investing in an IPO can potentially provide investors with several benefits, including:
- Higher Return: IPOs can offer significant upside potential. It offers investors the opportunity to invest in a company in its early stages. A good company provides a higher return within a few days after listing on stock exchanges.
- Diversification: Investing in an IPO can help diversify your investment portfolio.
- Access to new investment opportunities: IPOs offer an opportunity to invest in relatively new public companies. This can potentially provide exposure to high-growth sectors.
What are the requirements for applying for an IPO?
To invest in IPO shares, you must have
- Demat and trading accounts: To apply for upcoming ipo trading account is required, and shares are stored in a demat account after allotment.
- Bank account: A bank account is required to make payment for the application.
What are the steps to follow to apply for an IPO through stock broker?
Applying for an Initial Public Offering online through a broker is a fairly simple process. To proceed, these are the general steps you should follow:
- Step #1 Login:- Log in to your broker’s website or mobile app, go to the IPO tab, and select the IPO you want to apply for. To open zerodha account :- Click here
- Step #2 Price and quantity: – Enter the price at which you want to apply for shares and the number of lots. In a book-building issue, if you want to increase the chances of IPO allotment, prefer bidding at the maximum price at the upper end of the price band.
- Step #3 Payments: – Once you have filled this out, you will need to make the payment. you can make the payment using net banking, UPI, or any other payment mode accepted by the broker.
- Step #4 Confirmation: – After making the payment, you will receive a confirmation of your application. After your confirmation, your broker will block the amount for the number of shares you applied for in your account.
- Step #5 Allocation of shares: – After the IPO closes; you will receive an allotment of shares if your application is successful. If you are not allotted any shares, the blocked amount will be unblocked and returned to your bank account.
It is important to note that the exact process may vary depending on the broker. Therefore, it is crucial to thoroughly read the guidelines given by your broker prior to applying.
Read also: REITs in India
Conclusion
In this blog we have cover what is ipo and other crucial aspect. investing in an ipo can be a lucrative opportunity for those seeking early or high returns. the choice to invest in upcoming IPOs should be a personal one, based on informed research, financial goals, and risk tolerance.
I hope you enjoyed reading this. Please share it with other and do comment!
Read also: What is mutual funds