All You Need to Know About IPO
The IPO full form is Initial Public Offer. The investors who apply and get allotted any shares of the IPO become their shareholders, i.e., they are the part owners of those stocks. Investing in IPOs with these online platforms offers a whole lot of benefits that set them apart from the rest of the competition. They offer seamless processes, 0% commission, and research-backed advisory are just a few of the USPs investing with them the correct choice. The seamless process from opening an account to executing all these trades, everything is designed to be quick and user-friendly, allowing them to focus on other crucial things.
Who is Eligible for IPO?
When the IPO hits the market and opens for its subscription, it is referred to as the primary market. As the name suggests, the primary market is the initial market of the stock exchange. Once the IPO shares are listed, they will then be traded in the secondary markets.
Any adult who is competent to enter into a legal contract can apply for these IPOs. It is necessary to have a Demat account for investing in IPOs because these days all allotments are done only in Demat form.
Does Anyone Require a Trading Account for Investing in IPOs?
Technically, one does not require a trading account for applying for an IPO. Demat account alone suffices that. However, if someone needs to sell the shares post-listing then they do require a trading account. Also, if they want to apply for the IPO online, then it is much easier to log into their application through their online trading account.
The Massive Difference Between a Fixed Price and a Book-Built IPO
Fixed priced IPO is one in which the bond issue price is fixed. It is the par value of the bond plus a premium on it. In a book-built issue, the price is mainly discovered by bidding and the final price is decided based on the level where there is maximum demand. The issuer only defines the price range in case of a book-built IPO issue.
The Basic Problems One May Encounter While Trading in IPO:
- Size of the IPO Issue and the Book-Building Price Range
The company that is coming out with the IPO decides the size of the issue based on how much funds it requires. The investment banker (BRLM) advises the company on the ideal price range based on valuations and appetite from retail and institutional investors.
- Number of Days the IPO is Kept Open
Typically, the company keeps the IPO open for 3-4 days to enable its investors to apply for the IPO. All valid applications are to be logged into the system before the close of trading on the last day.
- Process After the closing of the IPO
The process after closing the IPO is to finalize the basis of allotment and then allot the shares within around 10-12 days. Then, the company is listed on the names of stock exchanges.
- Basis of the Allotment of the Shares
There are three main categories of investors in an IPO. The retail investors are allotted in a way that many investors get the bare minimum allotment to widen the equity base. The HNI category gets allotments on a proportionate basis depending on the oversubscription.
One can normally apply for a current ipo through the banker to the IPO, and after listing the IPO is traded in the share market. That is entirely market driven. A variety of factors go into the listing price such as valuations of the company, how it compares with a peer group, the profitability of the company, demand post listing, quality of anchor investors, and many more.