Are you interested in investing in the stock market but don’t know where to start? Do you want to learn how to invest in IPOs, which are the first public offerings of shares by companies? If yes, then you have come to the right place. In this blog post, we will explain the basics of IPO investment for beginners in India, the process of applying for an IPO, the benefits and risks of IPO investing, and some tips to help you make smart decisions. Let’s get started!
What is an IPO?
IPO stands for Initial Public Offering. It is the process by which a privately held company sells its shares to the general public for the first time. By doing so, the company raises funds for its growth, expansion, debt repayment, or other purposes. The company also gets its shares listed on the stock exchange, which increases its visibility, credibility, and liquidity.
Why do companies issue IPOs?
Companies issue IPOs for various reasons, such as:
- To raise capital for their business needs, such as expansion, acquisition, research and development, etc.
- To provide an exit option for the existing shareholders, such as promoters, venture capitalists, private equity firms, etc.
- To enhance their brand value and reputation in the market.
- To attract and retain talented employees by offering them stock options or employee stock ownership plans (ESOPs).
Glance At the Tutorial On IPO investment for beginners in India
How to invest in IPOs?
Investing in IPOs is different from investing in the secondary market, where you buy and sell shares of already listed companies. However, there are some steps that you need to follow to invest in IPOs. Here is a step-by-step guide:
Step 1: Open a trading and a demat account
To invest in IPOs, you need to have a trading account and a demat account. A trading account is where you place your buy and sell orders for the shares. A Demat account is where you hold your shares in electronic form. You can open these accounts with any registered broker or online platform, such as Lares Algotech, India’s best and most reliable crypto trading platform.
Step 2: Choose the right IPO
Once you have your accounts ready, you need to choose the right IPO to invest in. You can find the list of upcoming and ongoing IPOs on the websites of the stock exchanges, such as BSE and NSE, or the websites of the brokers or online platforms, such as Lares Algotech. You can also check the news and media reports for the latest updates on the IPOs.
Before you decide to invest in an IPO, you need to do some research on the company and its business. You can find information about the company, its financials, promoters, objectives, risks, competitors, and plans in the prospectus, a document that the company files with the regulators before launching the IPO. You can access the prospectus on the websites of the stock exchanges, the company, the brokers, or online platforms.
You should also look at the valuation of the company, which is the price at which it is offering its shares to the public. You can compare the valuation of the company with its peers in the same industry or sector, and see if it is reasonable or not. You can also use some financial ratios, such as price-to-earnings (P/E), price-to-book (P/B), return on equity (ROE), etc., to evaluate the profitability and growth potential of the company.
Step 3: Apply for the IPO
After choosing the IPO you want to invest in, you need to apply for it. You can apply for an IPO online through your trading account or your bank account, using the Unified Payments Interface (UPI) method. You can also apply for an IPO offline through a physical application form, but this is less convenient and more time-consuming.
To apply for an IPO online, you need to follow these steps:
- Log in to your trading account or your bank account, and select the IPO that you want to apply for.
- Enter the number of shares that you want to apply for, and the price range that you are willing to pay. You can apply for a minimum of one lot, which is the minimum number of shares that you can buy in an IPO. The lot size and the price range of the IPO are mentioned in the prospectus and the websites of the stock exchanges, the company, or the brokers or online platforms.
- Confirm your application and provide your UPI ID, which is a unique identifier that you use to make and receive payments through UPI. You can create your UPI ID through any UPI-enabled app, such as Google Pay, PhonePe, Paytm, etc.
- Verify your application and authorize the block of funds in your bank account. You need to have sufficient funds in your bank account to cover the amount of your application. The funds will be blocked until the allotment of shares is done and will be debited only if you receive the allotment.
Step 4: Check the allotment status
After you have applied for the IPO, you need to wait for the allotment of shares, which is the process of distributing the shares among the applicants. The allotment of shares is done by the registrar of the IPO, who is an entity appointed by the company to manage the IPO process. The allotment of shares is done based on the demand and supply of the shares, and the category of the applicants.
There are three main categories of applicants in an IPO:
- Retail individual investors (RIIs) are individual investors who apply for shares worth up to Rs 2 lakh.
- Non-institutional investors (NIIs) are individual investors who apply for shares worth more than Rs 2 lakh, or corporate investors, such as companies, trusts, societies, etc.
- Qualified institutional buyers (QIBs), who are institutional investors, such as banks, mutual funds, insurance companies, pension funds, etc.
The allotment of shares is done proportionately within each category, and there is a reservation of shares for each category. For example, in a typical IPO, 50% of the shares are reserved for QIBs, 15% for NIIs, and 35% for RIIs.
The allotment of shares is done within a week after the closure of the IPO. You can check the allotment status on the websites of the registrar, the stock exchanges, the brokers, or online platforms, by entering your application number or your PAN number. You will receive an email or an SMS from the registrar, informing you about the allotment status.
If you receive the allotment, you will see the number of shares allotted to you and the amount debited from your bank account. If you do not receive the allotment, or receive fewer shares than applied for, you will see the amount refunded to your bank account. If your status is pending, the allotment process is still ongoing, and you need to wait.
Step 5: Trade on the listing day
After the allotment of shares is done, the next step is the listing of the shares on the stock exchange, which is the process of making the shares available for trading in the secondary market. The listing of the shares is done within a few days after the allotment of shares. You can check the listing date on the websites of the stock exchanges, the company, or the brokers or online platforms.
On the listing day, you can trade the shares that you have received through the IPO, or buy or sell more shares of the company, through your trading account. You can also track the performance of the shares on the websites of the stock exchanges, the company, the brokers, or online platforms.
The price of the shares on the listing day may be higher or lower than the price at which you bought them in the IPO, depending on the demand and supply of the shares, and the market conditions. The difference between the listing price and the IPO price is called the listing gain or loss. You can decide to hold or sell your shares based on your investment objectives and risk appetite.
What are the benefits of IPO investment for beginners in India
Investing in IPOs can offer you several benefits, such as:
- You can buy the shares of a company at a lower price than the market price, and enjoy the first-mover advantage.
- You can participate in the growth story of a new or emerging company, and benefit from its future potential.
- You can diversify your portfolio by investing in different sectors and industries.
- You can earn listing gains if the shares list at a higher price than the IPO price.
What are the risks of investing in IPOs?
Investing in IPOs also involves some risks, such as:
- You may not receive the allotment of shares, or receive fewer shares than applied for, due to the oversubscription of the IPO.
- You may face listing losses if the shares list at a lower price than the IPO price, or decline further after listing.
- You may face liquidity issues if the trading volume of the shares is low, or if there is a lock-in period for the shares.
- You may face regulatory or legal issues if the company fails to comply with the norms or discloses false or misleading information.
What are some tips for IPO investment for beginners in India
To make the most of your IPO investment, you should follow some tips, such as:
- Do your homework and research the company, its business, its financials, its valuation, its competitors, and its plans before
- Do your homework and research the company, its business, its financials, its valuation, its competitors, and its plans before investing in an IPO. Do not invest based on hype or rumors but on facts and analysis.
- Apply for the IPO through a reliable and trusted broker or online platform, such as Lares Algotech, which offers you a hassle-free and secure way of applying for IPOs online. You can also get access to the latest updates, news, and tips on IPOs through Lares Algotech.
- Apply for the IPO within the price range that suits your budget and expectations. Do not bid at the highest or the lowest price, but at a reasonable price that reflects the fair value of the company.
- Apply for the IPO in the retail category, if you are eligible, as it has a higher chance of getting the allotment of shares. You can also apply for multiple lots, up to the maximum limit, to increase your probability of getting the allotment.
- Do not sell your shares on the listing day, unless you are sure that the price has peaked or you need the money urgently. Hold your shares for the long term, and monitor the performance of the company and the market regularly. You can also use the stop-loss and target-price features of Lares Algotech to protect your profits and limit your losses.
Conclusion
IPO investing can be a rewarding and exciting way of participating in the stock market if done wisely and carefully. You can get the opportunity to invest in the shares of a new or emerging company and benefit from its growth potential and listing gains. However, you also need to be aware of the risks and challenges of IPO investment for beginners in India and follow some tips and best practices to make smart decisions.
We hope that this blog post has helped you understand the basics of IPO investing, and how to apply for an IPO in India. If you have any questions or doubts, please contact us at Lares Algotech, India’s best and most reliable crypto trading platform. We are always happy to help you with your investment needs.
