
5 Crucial Tips for Wisely Investing in IPOs
If you are looking to enter into the world of stock market, the first step is to open a Demat account or trading account. From there, the stock market offers a number of opportunities for investment. One such opportunity that attracts investors are IPOs. An IPO or Initial Public Offer is the first offer a company makes to the people to buy its shares. For a company, the primary aim of releasing an IPO is to raise funds and expand operations at a faster pace.
Investing in an IPO is tricky and challenging for both beginners and seasoned investors. Before jumping into the ocean of the stock market, where stock prices go up and down, keep these 5 tips in mind that will help you invest funds correctly.
1 Research and Study the Company
IPOs are released by private companies, hence study everything about the company that you are planning to buy IPOs of. Keep in mind that private companies don’t have strict regulations, so there is a chance that they might hide important information from the public.
Search online about company’s history, past press releases, its competitors as well as position in the industry. Even though it may seem difficult to get good intel, learning as much as possible about the company is a critical step before making an investment.
2 Thoroughly Read Red Herring Prospectus
When you invest funds in an IPO, you want to become the company’s equity holder, and not debt investor. Before making your investment in the IPO, make sure you read the company’s prospectus in detail. It may be a dry read, but it will give you an adequate information about where the money raised through the IPO will be utilized.
You can find red herring prospectus about a company on its website, SEBI portal, stock exchange site or newspaper. It will help you learn about the company’s background, reasons for going public, its plan to use funds and what risks are involved.