How to Buy IPO: Application Process for Investing in IPO
A number of companies go public every year, making us excited to invest in them. In the year 2023, more than 30 IPOs were opened in India and around 63 IPOs were established in India in the year 2021 alone. This number is increasing rapidly, with many companies becoming public every year. Even most of the well-known brands like Paytm, LIC, Apollo, Reliance Power and many more brands are seen hitting the public markets.
This leaves us all thinking - how to be part of this ever-evolving system of IPOs? This post will walk you through all of your IPO-related queries, such as:
What is an IPO?
How to Buy Funds from an IPO?
Who are IPOs Most Suitable For?
What are the Common Mistakes an Investor Makes when Investing in an IPO?
What is an IPO?
IPOs or an Initial Public Offering is the process of a privately owned company becoming public. When a company is private, 100% of its shares are owned by the owner or stakeholder. But, when the company is public, the owner decides to take the company public, and they approach stock exchanges such as BSE and NSE to list their company.
In the process of this, they make their shares available to investors to subscribe. Investors then invest in the IPO during the subscription period and wait for the IPO listing.
Before looking out for the Upcoming IPO in the market, let's get our heads around how to start investing in them. Learn how you can start applying or subscribing to an IPO.
How to Apply for an IPO?
You can apply for an IPO both online and offline. If you want to apply for an IPO offline, you will have to submit a form to your IPO banker or broker to initiate the procedure. On the other hand, when you apply for an IPO online, you will have to log in using the trading interface provided by your banker or broker.
The online method is much simpler than the offline method - as all your information will automatically be updated on the form through your demat account.
It could possibly save a lot of your precious time and effort! So, let's look at the online method of applying one step at a time.
Choose the Right IPO for You
Pick the right IPO for you, and it is the most crucial step. You will have to remember - not all IPOs are good ideas. So, make a smart move here.
Arrange for the Funds
Keep your finances in hand. Always be sure about the money you invest here since it is associated with market risks.
Open a Demat Account and Trading Account
A Demat account holds a record of all the purchases you make in electronic forms, while a trading account lets you trade shares freely.
Apply!
You can purchase IPO units or shares with your Demat account or bank account. Some banks also give you the option to open a demat account - and once you have your account activated, you can buy a share of the IPO you wish.
Your Demat account will handle your electronically bought share from the IPO, and it will enable you with a method to grow your wealth over time.
Who are IPOs Most Suitable For?
IPOs are yet to come to the market; they could be risky - and sometimes estimations could go wrong. Therefore, these funds can be suitable for:
Investors who are going to invest what is left after their expenditure.
Investors who have expertise in the stock market.
Investors who are looking forward to diversification.
Investors with a high-risk appetite.
Investors who are looking forward to increasing their risk appetite.
Mistakes Investors Make While Investing in IPOs
So here, let's break some of the biggest myths - If everyone is excited about it, I should Invest. This is a wrong mentality. When you invest in this investment vehicle, you will have to look for the best options out there. Sometimes, even the biggest of companies could go downhill. Make logical decisions when it comes to IPOs and not emotional ones.
IPOs are the source of a new environment, there's no doubt. But, we most often make mistakes by choosing the companies that we are most familiar with. More like - "I have a plan in LIC, so when it comes out to the market, I am going to put my money in it." A decision without proper planning could mostly go wrong. Therefore, it is best advised for every individual to do their proper analysis and research before they can start investing.
There is often the myth that if a company is going public, it is going to be financially stable. This is not true in most cases - a lot of factors can bring the financials down, such as government moves, markets, economic factors, social factors, and much more. So, don't be too sure that you would be investing in a company whose financials would always stay high.
Not understanding the reality of IPOs is another major factor that every individual would have to be considerate of. While a company is operating in a privately owned system, we don't know 100% of it. Only when it comes to the public space do we look at how it works, its ups and its downs. So, here, when a company is new to the market, you will have to open to some ups and downs in the current time.
Final Thoughts
IPO investments come with a lot of benefits, but the truth is not all IPOs are known to be long-time investors. So, you will have to be watchful when you start investing in IPOs that come out in the market. Also, make sure you choose the IPO that is right for you! All IPOs might look good, but only a few can match your financial needs in the long run.
Disclaimer: This article is published in association with Groww.in and not created by TNM Editorial.