Initial Public Offering (IPO) – Details
There are many ways by which one can earn money via stock market. One of the many ways also includes IPO. Many new investors do not know about IPO. Let’s have a detail about IPO.
What is an IPO?
IPO stands for Initial Public Offering. It’s a process by which any private limited company becomes a public limited company. Through an IPO a company gets listed in the stock market for the first time. Company offers IPO to trade their shares directly to the investors. IPO is quiet a good investment option for private investors.
Why Do Companies Issue an IPO?
Companies issues IPO to public to fulfill the funds requirements. These funds are used for various purposes by the companies to expand and grow their business.
These funds may be used for the following purposes:
• To set up a new business.
• To expand the existing business.
• To purchase or setting up the new machinery.
• To increase current business capacity etc.
Things to Consider before applying for an IPO in India
There are several factors which must be considered before applying for an IPO:
1. DRHP
DRHP stands for Draft Red Herring Prospectus. It is a document with all details about the company and the upcoming IPO. DRHP is filed with the SEBI (Stock Exchange Board of India) before the public issue. Read and go through the DRHP document of the company before applying an IPO.
2. Financial Statement
Go through the company’s financial statement well before applying an IPO. A company with good fundamentals is more likely to grow.
3. Company’s Promotors
Before applying for an IPO, one must check the promotors for the company. Promotors could either be an individual or a company. Check about the promotor’s background and experience as they are the driving force for any company.
4. Objective of the Issue
Read about why a company is issuing an IPO. Where the funds are going to be used? What is the purpose of issuing an IPO? This is also a very important factor.
5. Company’s Business Profile
Always invest in the company whose business profile is clear to you. Read and understand about the company’s business well including their products, network, services etc.
Conclusion
IPO is always a good option for investing but before investing you must go through these important factors. Also, consider your financial goals before applying for an IPO.
Also Read: How to Apply for an IPO – Requirements and Details
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