In this article, we will cover
- What is an IPO and How Does it Work?
- Risks and Rewards of Investing in an IPO
- Most Important Points to Consider Before Investing in an IPO
- How Have IPOs Performed Previously?
- Should You Invest in an IPO?
What is an IPO and How Does it Work?Before we reveal if investing in an IPO is worth it or not, let us understand the meaning of an IPO. The term IPO stands for Initial Public Offering. IPO is when companies raise equity capital by selling shares to the general public for the very first time. These shares are later listed on the stock exchange where they are freely traded. By investing in an IPO, you become a shareholder of the company. Read our detailed article to know more about IPOs and how they work.
Watch this video to understand, What is IPO, and How to Invest in it,
Risks and Rewards of Investing in an IPOIn investing, risk and reward go hand in hand. Higher the risk, higher will be the reward and vice versa. Let us understand the risk-reward relationship while investing in an IPO.
Risks in IPOs
Rewards in IPO
Most Important Points to Consider Before Investing in an IPO1. Detailed analysis is compulsory Investors must do a detailed study of the major listed companies in the sector of the upcoming IPO and compare their growth, and their PE ratio. If the company has a high PE ratio, then investors can skip the issue. 2. Check the company’s Promoters IPOs are often an opportunity for promoters to dump their stocks. Hence you must do a thorough background check on the company and its promoters. 3. Determine your investment priorities Before investing in any IPO, it is important to have a clear idea of what your risk appetite and financial goals are and then select the appropriate IPO. 4. Invest smartly Avoid getting swept away in the initial hype surrounding an IPO listing. Instead, do your homework and make a point of investing in businesses that you understand or have expertise in.
How Have IPOs Performed Previously?Most of the IPOs listed in 2020 have performed well. Here’s a look at their performance.
- Rossari Biotech (issue price Rs 425) has gained 58% and got listed at Rs 670 on July 23.
- Gland Pharma (issue price Rs 1500) has soared 13.4% to Rs 1,701 in less than a months span.
- Route Mobile (issue price Rs 350) gained 75% and got listed at Rs 651 on September 21.
- Happiest Minds (issue price Rs 166) gained 111% and got listed at Rs. 351 on September 7
- Mrs Bectors (issue price Rs 288) gained 74% at got listed at Rs. 501
- Burger King (issue price Rs 60) gained 92% at got listed at Rs 115
Should You Invest in an IPO?Investing or not investing in an IPO depends on your own financial goals and risk appetite. Even if an IPO is overhyped, you must keep a check on your emotions before taking any investment decision. If you believe that the fundamentals of the company are healthy and the company has attractive future growth prospects, then you should invest in the IPO. You must be able to differentiate between hype and the real strength of the company before investing in an IPO. Samco provides you with an unbiased review on all IPOs which will help you make the right decision. To invest in profitable IPOs in 2021, open a 3-in-1 account with Samco & get a Demat account, online trading account, and a mutual fund investment account and get started with the wealth creation journey! [Recommended reading: 10 Tips and Strategies of investing in IPO]