Mutual Funds

when the word IPO comes across we have many thoughts,

are IPO worth investing, can IPO be applied through our
broker, do IPOs always go up, how IPO price is decided, is
IPO good or what IPO should I buy? Most common question
we all have is how IPO works? And how IPO is allotted or
how IPO is issued?

Well beginning with, what IPO stands for is initial public

offering. We are not discussing in deep about when IPO will
be listed etc. but the basic questions like when IPO will be
allotted. Which IPO to buy or subscribe? Which IPO to
apply? In short How should you invest in IPO?

If you have questions like: What is IPO? How to Invest in

IPO? You are at right place for the answers:

An initial public offering, or IPO, is the very first sale of

stock issued by a company to the public. Initial public
offering is the process by which a private company can go
public by sale of its stocks to general public. It could be a
new, young company or an old company which decides to be
listed on an exchange and hence goes public.

Initial public offering (IPO) or stock market launch is a type

of public offering in which shares of a company are sold to
institutional investors and usually also retail (individual)
investors; an IPO is underwritten by one or more investment
banks, who also arrange for the shares to be listed on one
or more stock

An IPO (initial public offering) is referred to a flotation,

which an issuer or a company proposes to the public in the
form of ordinary stock or shares. They are generally offered
by new and medium sized firms looking for funds to grow.
However, it can be done by big privately-owned firms
seeking to transform themselves into an openly traded firm.

A corporate may raise capital in the primary market by way

of an initial public offer, rights issue or private placement.
An Initial Public Offer (IPO) is the selling of securities to the
public in the primary market. It is the largest source of
funds with long or indefinite maturity for the company.
Demat Account

If a brand new company or a company already in existence,

but with no shares listed on the stock exchange, decides to
invite the public to buy shares, it is called an Initial Public
Offering (IPO).

It is the first time that it is approaching the public for

money. That is why the company is also referred to as
'going public'.

The government of India has been playing proactive role in

the real estate market by the commencement of the In an
IPO the company may procure the support of the
countersigned enterprise, which assists in establishing what
kind of security to issue, competitive offering cost and the
period in which it should be launched in market. An IPO can
be an unsafe venture for it is tough for an investor to predict
how the stock or share will perform on its first trading day
and afterwards. Moreover, the historical information
available with the company is not sufficient enough to
analyze the performance of the stock in Indian market.

Most IPOs are of the firms that are undergoing through

momentary growth duration, and they are hence entitled to
auxiliary vagueness related to their future performance.
While IPOs are effectual at raising revenues, being cataloged
at a stock exchange demands immense authoritarian
observance and treatment needs.

The Initial Public Offering assumes that the firm is a

significant market presence, is flourishing and has the
obligatory past record to raise assets in public equity
market. If the firm later trades recently tendered shares
once again to the equity market, it is known as seasoned
equity offering. When an investor trades shares, it is
referred to as secondary offering and the investor and not
the firm that has initially proposed the shares, maintains the
advances of the offering. These phases are usually perplexes
and only a firm which proposes a share can indulge in chief
offering or the IPOs. Secondary offering takes place in a
secondary equity market, where investors and not the firm
purchase and trade from one another.

How IPO works?

The IPO method begins when the business lodges a

registration declaration in accordance with SEC and as per
the Securities Act of 1933. The SEC then studies the listing
declaration and supports the entire revelation. The sponsor
then proposes a prelude brochure and then an authorized
catalog prior to the share offering. After the SEC
endorsement, the value and time of the IPO are determined.
As investing in an IPO is an uncertain and tentative
endowment, only active merchants relying on their
endowment motives and risk forbearance, should opt for
such kind of endowment.

Applying for an IPO:

Buying from the primary market means that you buy them
directly from companies when they make new issues of
shares or come out with IPOs. You can also get rights issues
and bonus shares, but more on that later.

If you want the shares of a company that is already listed,

you can buy them from the Stock Exchange through
brokers. This is called buying from the secondary market.

Get an application form

You can pick up the application forms at any broker's office -

they are even available on some street kiosks in your city's
financial area.
The forms are all free.

Fill up the form -- the directions are given in the form --

and write a cheque for the amount you want to apply for.
Every issue has a minimum number of shares that you must
apply for, which is specified in the application form.

Submit both within the time frame specified.

Submit the form: You will have to submit it to the
collecting bankers (a list is given in the form), or to the
collecting agents for the merchant bankers (financial players
managing the entire issue for the company) to the issue.

You can buy online too: If you have trading accounts with
online brokerages, you can apply online.

The process is simple, and detailed instructions are available

on these brokers' web sites about how to proceed at every
step.

Typically, you have to go the site and click on Open IPO,

where you will get the list of IPOs open for application. Once
you select an issue, you will be directed to the Applications
page, where the form can be filled in and submitted online.

The trouble is, there are usually plenty of applicants for

good IPOs.

And they are heavily oversubscribed (the demand for the

number of shares is more than the number being offered for
sale).

And although 25% of the issue has to be reserved

mandatorily for the retail investor (those who apply for
shares of a value less than Rs 50,000), even the retail
portion is oversubscribed several times for good issues.

In this scenario, lots are drawn and only a few individuals

are allotted shares.

Hence, you may not get the number of shares you asked
for. There is also a chance that you may also not get an
allotment at all, in which case your money will be returned
to you.

If you don't get any shares, your money will be returned to

you within 21 days. This is true even if you get partial
allotment (you get only some of the shares you applied for),
and the extra money you have paid is returned.
If you do get an allotment, your demat account will be
credited with the shares. Once the shares are listed, you can
sell them in the market and pocket the gains.

Of course, you can also hold your shares for the long term if
you want, but most people opt out if the price on listing is
well above the price at which you were allotted the stocks.
Remember, you need to have a demat account before
applying for IPOs. Else your form will be rejected.

When a firm proposes a public issue or IPO, it offers forms

for submission to be filled by the shareholders. Public shares
can be bought for a limited period only and as per the law,
any IPO should be traded openly only for minimum 3 days
and 21 days maximum. For offers that are sponsored by
financial institutions, the proposal should be traded for
maximum 21 days and minimum 3 days.

For offers that are sponsored by India financial institutions,

the proposal should be traded for maximum 10 days. The
submission form should be duly filled up and submitted by
cash, cheque or DD prior to the closing date, in accordance
with the guidelines mentioned in the form. IPO's by
investment firms generally entail countersigned charges
which signify a load to purchasers.

Things to consider before applying for IPOs:

There are certain factors which need to be taken into

consideration before applying for Initial Public Offerings in
India. They are:

 Promoters, their reliability and past records

 Firm producing or facilitating services
 Product offered by the firm and its potential
 Whether the firm has entered into a collaboration with
technological firm
 Status of the associates
 Historical record of the firm providing the Initial Public
Offerings
 Project value and various techniques of sponsoring the
plan
 Productivity estimates of the project
 Risk aspects engaged in the execution of the plan
 Authority that has reviewed the plan