IPO – the term is the buzz of the town. It has become a part of every casual conversation among friends discussing investments. But what are IPOs? Back in 2017, the Indian financial market witnessed 36 Initial Public Offerings (IPOs), raising Rs 67 crore in the equity market. Corporate companies use IPO to raise capital in the primary market, to the new issuers, through an initial public offer, issue of rights, or private placements. The new securities issued for the first time are listed in the primary market, which lists the company on the stock exchange, allowing it to trade freely in the open market. It is one of the company’s most significant funding sources with long and indefinite maturity.
IOPs are considered an essential step in the business’ growth. Private investors need to realize gains from the investment as a private company transforms into a public company because it includes a share premium for current private investors. For a company to release its IPO, it must abide by the regulations of exchanges and the Securities and Exchange Commission (SEC). The prospects are high as the company gets several investors. It is ensured that IPOs are discounted to ensure a rise in sales, which usually attracts people to buy them.
Until now, 2021 has been one of the years where IPOs had an excellent performance across the market. The market saw a steady increase in the participation of the investors. The government’s rapid digitalization and regulation policies resulted in this spike in the investment of IPOs. Statistical reports suggest that if the trend continues, 2022 might also prove significant for the upcoming IPO.
Investors can attain several benefits by making IPOs investments. Some of them are as follows:
- First-Movers’ Advantage – when reputed companies announce their IPOs in the primary market, the investor gets the advantage of getting them at a discounted rate. When it reaches the secondary market, the rate goes up immediately. IPO is a window to rapid profit in a short period, contributing to growing wealth in the long run. Also, the investor can enter the ground floor of a company’s stage and estimate the growth potential.
- Greater Returns than Investments – the IPOs are available at cheap prices and discounted rates in the primary market. As the share enters the secondary market, the price skyrockets, and the initial investor gets a higher return than the investment.
- Fulfilment of Long term Goals – this type of Equity investment proves advantageous for its investors in the long run since it has the potential to bring higher returns. The amount earned can be used up to fulfilling long-term financial goals. Also, the market of IPOs is growing in India, which is a good sign for investors.
- Stringent Norms – the rules and regulations of the IPO market have grown more professional and are safer now. The investor can get information regarding the company’s finances, previous growth range, risks, performance, future growth prospects, and many more, which provides investors with the confidence to invest in a particular IPO.
- Transparency – according to SEBI’s guidelines, the company shareholders must get their share of the profit, and the level of profit sharing is already mentioned in the prospectus. Thereby this maintains transparency between the investors and the company.
Thus, investing in IPOs is an excellent option for people who aspire to invest less to get significant returns. Also, it is easy to make trades related to IPOs as one only needs to know how to open a Demat account. Therefore, IPO performance depends entirely on the market sentiment, which can instantly increase the returns.