An Initial Public Offering (IPO) is when a privately owned company decides to offer the public an opportunity to invest in their shares by trading some of these shares on the stock market.
That is the simple answer to the question what is IPO? But there are numerous other aspects to consider, including how to apply for IPO and other elements of the process that you need to understand so that you have a good level of comprehension as to what you are buying into.
How does it work?
It all starts when the business in question decides that it wants to raise cash for its future development plans and for the owners to crystalize some of the value that they have managed to create to this point.
The process of listing the shares is properly regulated by the Securities and Exchange Board of India (SEBI) and that is where the business will first register their intent to list their stock at a future point.
The idea is to notify the public of an intended listing in order to gauge the level of interest as well as going through a due diligence process.
Members of the public are invited to register their interest, and this will give the business a good indication of the level of demand for the shares they can expect.
What’s the attraction?
If you had bought and held shares in a company such as Apple, for instance, when the shares were first listed on the stock exchange, the value of each share is considerably higher than it was and that would mean you would be sitting on a very handsome profit.
Not every share will produce the same stellar performance, of course, and the value of some investments are just as likely to fall rather than rise.
Investing in the stock market always presents an element of risk but the reason an IPO is so popular is due to the fact that you are subscribing to a scenario where you have a fighting chance of growing your cash by watching the value of your shares rise.
How to apply?
You might want to watch this video tutorial on how to apply for an IPO so that you have everything you need to start your investment journey with a degree of confidence.
In the meantime, the main point to remember is that you can apply for an IPO through a trading account that you have registered or via your bank account.
A good broker will guide you through the process and explain all about trading and Demat accounts so that you are good to go and can take advantage of opportunities in the future as they arise.
You will often find that a minimum investment level is required and if the listing is oversubscribed you might not get all of the shares you apply for.
The fundamental underlying point about an IPO is that once your trading account is set up you can focus on spotting some of the investment acorns that turn into flourishing oak trees by buying into companies that make their shares available to the public.
