IPO’s

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance for the first time. An IPO allows a company to raise equity capital from public investors.

What is IPO ?

An IPO, or Initial Public Offering, is when a company sells its shares to the general public for the first time. The shares, previously held by the company executives, are offered to the common people in exchange for money or capital, which the business may use for expansion purposes or to pay off debt. Once the IPO process is complete, the company is declared publicly listed, and its shares can be traded in the open market.

Once a company becomes publicly traded, a part of its ownership is sold to investors. Typically, a company initiates IPO for the following purposes:

To infuse fresh equity capital.
To facilitate the trading of its assets.
To raise capital for various requirements.
To monetize the investment of its private stakeholders.

How does an IPO work?

Companies have to abide by the IPO process in India – as stipulated by stock exchanges – before their shares are eligible to be publicly traded. In India, SEBI governs the IPO process and has listed various steps included in the process of ‘How an IPO works in India’. The detailed process is as follows:

1 : Hiring Of An Underwriter Or Investment Bank

2 : Registration For IPO

3: SEBI Verification

4 : Stock Exchange Application

5 : Marketing

6 : Pricing of the issue

7 : The Bidding process

8 : Allotment of shares

After closing the IPO, the company, along with the underwriters, decides the number of shares to be allotted to each applicant. If the issue was oversubscribed, applicants get partial shares in 10 working days.

As IPOs can be a great start and an ideal option to diversify your portfolio. You can consider applying to IPOs of fundamentally strong companies. However, the prerequisite is that you can open a free Demat account with Ethical Investment Way. Once you have an active Demat account, you can apply to any of your preferred IPOs. (Demat Account opening Link add in Word)

FAQs

1 How does company ownership work?

Ans. The shareholders of every company become part owners in the proportion of the percentage of shares they hold. For example, if you hold 1,000 shares of ABCCompany and it makes up for 1% of the company value, you are the owner of 1% of the company.

2 How is the IPO pricing done?

Ans. The pricing is done through two methods: Fixed issue or book building issue. In the former, a specific price of each share is fixed. In the latter, the company gives a range to the investors to choose a price.

3. How to buy IPO stock?

Ans. You can buy an IPO stock by applying to the IPO issue of a company once it is live. You will need a Demat account and a trading account with an experienced stockbroker such as Ethical Investment Way to begin trading.