You might have read or heard about IPO announcements in newspapers, television or media or while browsing through the internet. Do you get enticed looking at an attractive Initial Public Offering? But, usually wonder which IPO investment is suitable for you? What are the things to keep in mind before subscribing for an IPO? If yes, this post is what you are looking for!
Initial Public Offering is the first time the owners of a company offer their shares to the public. Being an investor, you need to be smart enough to fully understand the various aspects related to such offerings. No doubt, IPO’s are a good investment tool to grow your money. But, you have to be careful, especially if you are a novice investor and weigh your risk and rewards before investing in an IPO.
Now, whenever a company announces an Initial Public Offering, it usually becomes an eye-catching proposition for the investors hoping to make more money. Making the right choice won’t seem difficult, if you keep in mind few important factors.
Let’s discuss some of the crucial parameters that you should measure before applying for an Initial Public Offering.
5 Factors to Consider before Subscribing in IPO:
1. Know The Company Well:
Before you subscribe for any Initial public offering, the foremost thing to do is to know the company, its background, its nature of business and its fund management team. What’s the primary purpose of issuing an IPO? You can easily get this necessary information and specific IPO details through the Red Herring Prospectus, an initial document covering requisite information. A thorough analysis of the company’s financial performance in the past years can help you take the correct IPO route.
2. Know The Underwriter:
The underwriters are intermediaries between the IPO issuer and the public to off shoulder the risk associated with the initial offering. An investment banker is appointed to handle the Initial Public Offering and for raising investments by issuing new securities. You need to be wary of the underwriter assisting the company, its ability to endorse a new issue and the specifications of its underwriting deal with the company.
3. Avoid Comparisons:
No two companies are alike! Making comparison of the new issuer with existing listed companies might not prove to be a good idea. You can’t judge one company’s performance with another similar one, even if it’s in the same business. Gather an in-depth knowledge of the to-be-listed company, scrutinise its details directly rather than relying on peer comparisons. Try to check the valuation of a company, although a bit technical stuff and hard for retail investors to handle.
4. Future road map of Issuer:
Before investing, you must know where your money is going. Understand the company’s future roadmap and how it intends to utilise the raised capital. You have every right to learn, how the company will utilise the funds generated from this Initial Public Offering. Is it for a large scale expansion, a dynamic product launch, to improve overall infrastructure, to take up marketing to new heights or to repay debts? Collect as much relevant details as you can to support your investing plan.
5. Check Demand & Subscription:
When the issue opens up for subscription, before stepping in, just keep an eye on the overall demand the IPO issue has generated in the market. How much interest the institutional investors, high net-worth individuals (HNIs) and retail investors are showing in the new issue? How the new IPO issue is being perceived by investors around? The company offers limited number of shares, so you need to keep a check on its demand and subscription patterns as well.
Once you are fully satisfied and the IPO looks to be a great fit, you can apply for it offline or through the trading interface provided by your online stock broker.
Also Read: IPO—The Dream to make Fortunes
Initial Public Offering: Final Thoughts
An Initial Public Offering seems to be a great opportunity to make money and add variety to your financial portfolio. But, IPO issues are sometimes over hyped and presented in a manner to capture maximum investor attention. It’s advisable to be cautious, grab useful company details, read the fine prints and then decide the perfect investment for yourself.
Are you planning to put some of your hard earned money in IPOs? Don’t forget to consider these significant factors before diving into the lucrative IPO market. If still confused, your online stock broker is there to guide you in taking the right investment decision. In fact, these days an online stock broker makes investing a much easier task!
Whether you choose Initial Public Offering, direct trading in stock market or any other financial instrument, remember to keep your financial goals in mind.