Meaning of IPOAn Initial Public Offering is when a private company sells its shares to raise money for the first time. Post an IPO, the company’s shares are listed on the stock exchange and are available for trading. To get an in-depth view on IPO investments, read our article on basics of IPO investing.
10 Tips & Strategies of Investing in IPOs
IPO Investment Tip 1: Do Your Own ResearchWhen you invest in IPOs, you are investing in private companies. Private companies do not have strict disclosure norms. So, often companies can hide sensitive information from the general public. Even when so-called ‘experts’ review IPOs, they only look at publicly available information. They do not conduct in-depth research into a company’s financials or internal workings. The red herring prospectus does give a good picture of the company and is also approved by SEBI. But remember, the red herring prospectus is written by the company itself and the company will try to hide all negative information to maintain its reputation. So, before you invest in an IPO, conduct your own research and do not rely on third party. You should ideally, compare the company's performance against its peers, overall sector analysis and its future growth projections.
IPO Investment Tip 2: Read the Red Herring ProspectusAn important IPO investing tip is to put efforts into studying the red herring prospectus. When you invest in an IPO, you become an equity holder of the company. So, unlike debt investors, you do not have any safety of capital. Therefore, it is important for you to read the red herring prospectus in detail to understand how your money will be invested. You can get the red herring prospectus from:
- Company’s website
- Stock Exchange website
- SEBI website
- Newspapers & Magazines.
- Background of the company
- Details of the promoters
- Reasons for going public
- Risks involved in the company
- What the company plans to do with the money etc.