WHAT IS INITIAL PUBLIC OFFERING?

Initial Public offering is the issuance of shares by a company for the first time. It is like Mukesh Ambani or Tata or Birla inviting you to be a partner in their business. A promoter invites partners through IPO to invest in the company that the promoter is starting. It is not possible to have a one to one partnership with each individual; therefore, Companies Act provides the concept of share capital wherein you can make every individual your partner with as low as one share. The share capital is also called equity capital. The promoter invites individuals to subscribe to the share capital one a one-time basis. This is called the Initial Public Offering or IPO. All investors new to the market are advised to start their investments in equity market through this route

Do listed companies not issue IPO?

Existing companies which are already listed issue public offering, these are called Rights Issue. This issue is made to the existing shareholders of the company. If fresh shares are issued by company it is gives right to every share holder to apply. Sometimes the promoters also offer their shares to the public. This money goes to the promoter and not the company. This is called Offer for Sale (OFS). Public sector enterprises normally use this route for disinvestment. Discounts are given to retail investors. Check on OFS section for more details

Share Issue price

The shares are issued at a price which is higher than the face value of the share. This is because IPO is offered by companies which are more than 3 years old. The promoter has already invested his time money and idea for 3 years, hence something extra is paid. The price is determined by the promoter and Merchant Banker, a SEBI regulated authority based on certain formula. In India the share issue price is normally higher than the value hence it is advisable to be careful

Safety

IPO pricing is normally very high; hence it is necessary to be careful while subscribing. Bad issue can lead to a loss.

Liquidity

IPO are listed on the stock exchanges, hence selling is not a problem on date of listing

Returns

IPO are like lottery. If the issue is good, you may get a premium on listing or if the issue is bad it may open lower than issue price on listing. The price may go further down with time.

Your IPO Performance

You can track your IPO investment performance

Research advise

ACMIIL provides Research advise on which IPOs are good for applying please subscribe to our Research for advice on IPO listings

Payment system

IPO has to be applied for through a UPI gateway

Allotment in IPO

Some companies are popular, hence there is lot of demand for IPO. Hence you may not get full allotment. Bank will debit your account only to the extent of allotment made to you. On allotment shares are directly credit to your Depository account. Hence be careful in giving your Demat account number, your application can be rejected in case of any error

Just for information

The objective for investing in IPO should be clear. Are you investing in IPO or the company? If investing in IPO alone then sell off your allotment whatever the price. If you are investing in company buy after listing, since bad companies open at loss and good companies you get such few shares as allotment that it is not worth holding small quantity.