In this article, We will discuss about IPO Investment & its various advantages & Disadvantages.
IPO or Initial Public Offering as the name suggests is a way company raise their funds in the market by making their shares available to the public. Usually, a business is in need of funds when it wants to expand in capacity or when it needs to diversify and enter new lines of business.
Businesses also would want to expand their presence all over India and also abroad. For all these funding an IPO will be required. Before getting into the detailed study what an investor needs to look into is how to apply for an IPO and also how to purchase IPO online.
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Who is Eligible to Invest in an IPO?
Plainly speaking any person who is eligible and competent enough to enter into a legal contract can apply for an IPO investment. Pan Card which is issued by the Income Tax Department is another essential requirement if a person wants to apply for the IPO of a company.
Another essential requirement has a DEMAT Account. Unlike the Trading Account, a Demat Account is necessary. However, if a person wants to sell their shares on the listing, then a trading Account is necessary. Legally speaking applying for an IPO Investment is not an offer but an Invitation to Offer. When an IPO issuer issues the shares, does it turn into an offer?
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How to Apply for an IPO Investment?
There are certain steps involved while applying for an IPO Investment. Few steps are as follows
Firstly, there are two types of IPO. There is the Fixed Price IPO, and then there is the Book Built IPO. In case of the fixed price IPO, the company fixes the price in advance which remain fixed. Such IPO can only be applied for at that fixed price.
In case of the book building IPO the company usually only provides an indicative price. The final price can be discovered only by going through the Book Building Process.
In case of IPO, there are three classes of investors which include the Retail, HNI and the Institutional category. It is beneficial for the investors to invest in the Retail format of investment.
Thirdly, bidding for an IPO can either be done online or offline.
What are the Advantages of IPO?
There are certain advantages involved in going public. When a private company decides to go public by selling its shares to the public there comes with it certain advantages. Some of the advantages are as follows.
- Raises a lot of money: This is one of the main reasons why a company would decide to go public, and it’s also very advantageous for the company. Suppose a company would want to clear off certain debts or would like to expand their business than capital would be a major requirement. By floating their shares to the public, the company can raise a decent capital base.
- Increases Liquidity: Speaking about the stakeholders or the employees or the capitalists who have put their sweat and blood into the company for its success, by going public is one of the ways these people can be rewarded for their efforts in the form of cash.
- Helps in mergers and acquisition: Another advantage of going public is that when a company which is public decides to enter into a merger with smaller competitors the main thing which is dealt with its shares. The cash flow available to smaller companies become much smoother.
What Are The Disadvantages Of Ipo?
Some of the disadvantages of IPO include
- Laborious decision-making process: In a private company few shareholders are why decision making is much quicker and simple. While going public, the disadvantage is that now before making any major decision the majority of the shareholders would have to give their consent. This slows down the process.
- Soaring Upfront Costs: Another disadvantage of Ipo is that the costs are high. When shareholders are minimum floating shares is not that costly. Floating shares to the public is much more expensive.
Thus, from the above discussion, it can be seen what the advantages and disadvantages of going public are. This is why when a company does decide to go public it should have done all possible research and planned out the whole thing before doing so.
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