What are IPO? IPO Process and How to Invest In 2022
Do you also want to earn listing profit by investing in IPO? Most retail investors apply for an IPO only for listing gains. Many investors do not have the right information about IPO and some investors are looking for the right information.
Friends, the search for the right information about IPO can be completed through this article. Today we will know what is IPO, What is IPO and answer to every question related to IPO.
Table of Contents
What are IPOs? What is IPO
IPO is brought by a company which is already doing some business. Through IPO, a company is offered to sell its shares to the public for the first time. After that investors apply for the shares of the company through IPO. IPO comes under the primary market. After the IPO, the company’s shares are listed on the stock market for trading. These listings can be on NSE or BSE or both stock exchanges. The company which issues shares through IPO is called issuer.
There can be many reasons for the company to go for an IPO, which we will discuss in more detail later.
IPO Meaning
IPO is Full Form Initial Public Offer. Also called a public offer or a public issue. Through the process of IPO, a private company or corporation becomes a public company (public company) by selling some of its shares. By coming to the IPO market of a company, investors have a golden opportunity to become a partner in the business of that company by buying their shares.
Why is an IPO brought by a company?
Friends, this question must be coming in your mind that why does a company offer to sell its shares to the public or why does it bring IPO. There can be many reasons for a company to bring an IPO which are as follows –
1. To pay off the debt
Many times companies have a lot of debt (debt). Instead of taking more loans or loans from banks, companies try to raise money through IPO by selling their stake. Due to this, there is no additional financial burden on the company. By raising money through IPO, the company either becomes debt free or reduces its debt.
2. For the growth and expansion of business
If the company wants to set up a new unit, launch a new service, a new product for the expansion of its business, then it needs more financial assistance. In this situation, instead of taking loans from banks, the company tries to raise fresh capital through IPO.
3. For reputation in the market
The company wants to increase its credibility and reputation by getting registered in the stock market. Due to being listed in the stock market, the liquidity of the company also increases.
Hope you have liked the information about IPO till now.
1.Book Building Offer
2.Fixed Pricing Offer
Fixed Pricing Offer
In this type of issue, the company decides in advance the price of the shares to be offered to the investors. In Fixed Pricing Offer, the investor knows the price of the shares in advance. When applying for IPO, investors have to compulsorily bid on the full share price. In Fixed Pricing Offering, the demand for shares is known only after the closure of the issue.
Book Building Offer
In this type of IPO, a price band of the share is fixed by the issuer company. Investors apply for IPO on the basis of this price band. In Book Building Offer, investors have to give details in their bid as to how many shares they will apply for and what price they are willing to pay for one share. are called. There may be a difference of 20!^ between the Floor Price and the Cap Price. The price of a share is decided on the basis of the bids made by the investors.
What is Prospectus
IPO prospectus – There is a document of the company whose IPO is about to come. In this, every information of the company is present like what are the sectors of the company, who are the promoters, who are the clients of the company, upcoming projects of the company, financial data, information about the issue etc.
There are two types of IPO prospectus-
IPO Draft Prospectus (DRHP)
IPO Red Hearing Prospectus (RHP or Final Prospectus)
IPO Draft Prospectus – This draft contains complete information about the company’s IPO. This prospectus is submitted to SEBI for approval.
IPO Red Hearing Prospectus – This draft is an extension of IPO Draft Prospectus. It contains complete information about the IPO such as when the IPO will open, share price, company’s latest financial data, underwriters etc. This draft is also called IPO Final Prospectus.
Before investing in any IPO one must read IPO prospectus. You will get it from the company’s website.
Who can invest in IPO?
Anyone can invest in an IPO. Even a minor can apply for an IPO. Investors need a Demat account to make IPO investments. A trading account is required to buy and sell shares. A retail investor can invest up to Rs 2 lakh in an IPO in the retail category. To invest in IPO you need Demat&Trading Account. You can open this account by clicking on the link given below.
How to Invest in IPO?
Nowadays investing in an IPO has become very easy. To apply for IPO, it is necessary to have a bank account and demat account. One can easily apply for IPO through ASBA or UPI. An IPO offer is generally open for 3 to 5 days. During this time you can apply for IPO.
ASBA – Through Internet Banking
ASBA i.e. Application supported by Blocked amount. You can invest in any IPO offered by ASBA using your bank’s online banking. For this you will need your Demat account number and PAN number.
Through UPI
According to the new guidelines of SEBI, now one can invest in IPO through UPI also. To apply for IPO through UPI, you must have a UPI ID. In this method you have to submit the application through your broker. In this, the payment mandate has to be made from the UPI of the account holder itself. Your money usually gets unblocked within two days from the day of allotment.
It is important to know here that during the period that your money remains blocked in your bank account, interest on the savings account keeps on getting. Interest continues to accrue because the money is not debited at the time of applying the application but is simply blocked.
IPO Allotment Process
Generally, IPO allotment takes place within 45 days of the closure of IPO subscription. If an IPO offer is subscribed by more than one fold or 100!^, the allotment is done through lottery. Shares are credited in the demat account of investors who are allotted IPOs and the application amount is debited or deducted from the bank. The money of investors who are not allotted the IPO is unblocked.
If fewer applications are received than the shares invited, then all those investors who applied in IPO get allotment. Bid should be placed at the cutoff price only.
Shares are listed in the stock market in 1 to 3 days after the share allotment. Here the trading of the shares of that company starts. Investors who did not receive shares in the IPO can buy shares from the secondary market.
IPO Process
The IPO process is a lengthy process which can be divided into several parts.
1- Selecting an Investment Bank
In the first step of the IPO process, an investment bank is selected by the company. This investment bank is selected to advise the company on IPO and provide underwriting service.
2- Completion of Due Diligence and Regulatory Filing
All the rules and regulations are ensured in this step. In this Underwriting Services and Red Prospectus are prepared. All the formalities related to SEBI, NSE/BSE, Security Control (Regulation) Act, Company Act are completed.
3- Pricing
The investment bank itself bears the responsibility of pricing. Here the valuation of the company is done. In this issue size, issue price, how many shares will be issued etc. are decided.
For example – Valuation of ABC company = 5000 crores
The company is looking to raise funds of 1000 crores. In this case the issue size will be 1,000 crores. If the company has fixed a share price of Rs 1,000, then 1 crore shares will be issued here. For this the lot of shares is also decided.
4- Distribution
In this, there is the task of selling the issue to different categories of investors. It consists of QIB, NII, retail investors.
5- Application Process
After distribution, applications are invited from investors. A certain time is fixed for the application.
6- Share allotment
Share allotment is done within a week of receipt of applications. The shares are credited in the Demat account of those to whom the shares have been allotted.
7 Listing on the Stock Exchange
After the share allotment, the company’s stocks are listed on the Stock Exchange (NSE/BSE) within 2 to 3 days. Its shares start trading in the secondary market.
Some important terms related to IPO
There are many such terms related to IPO, which you need to know about its meaning.
Issuer – An issuer is a company or firm that invites its shares to be sold to the public through IPO.
Price Band – The price of the company’s share is decided by the price band. In this the upper price and lower price of the share are fixed. such as ABC Ltd. The price band of the shares of Rs.100-120.
Underwriter – An underwriter can be a bank, financial institution, broker or a merchant banker. The Underwriter gives an undertaking to be subscribed to all the shares of the Company. If the IPO is not fully subscribed, the underwriters themselves buy the remaining shares. In return for all these services, the underwriters charge certain fees or commissions.
IPO Bid Lot – Bid lot is a predetermined number of shares. In which multiple investors have to apply for shares in the IPO. For example, if the bid lot of a company is 50 shares, the investor can apply for shares in multiples of 50, 100, 150 and so forth. The Bid Lot may vary for each IPO.
Registrar – IPO registrars are independent financial institutions registered with the stock exchanges and appointed by the company who primarily keep a record of the issue and ownership of the company’s shares.
Responsibilities of the registrar at the time of IPO include – processing the IPO application, allotting shares to applicants based on SEBI guidelines, crediting the shares in the demat accounts of the investors. All the problems related to Pre issue and Post issue shares are resolved by the Registrar only.
QIB – The full form of QIB is Qualified Institutional Buyers. QIBs are institutional investors who have specialized qualifications and experience in their field. Public financial institutions, commercial banks, mutual funds and foreign portfolio investors can apply under the QIB category. SEBI registration is required to apply under this category.
50% of the issue size is reserved for QIBs. QIB is not eligible to apply at the cut-off price of the share.
HNI – HNI means High Net Worth Individuals. In this, investors with high net worth come who apply in IPO for more than 2 lakhs.
Listing – Listing of shares on a stock exchange and trading regularly is called listing.
Conclusion – What is IPO
Before investing in the IPO of any company, all the important information should be gathered. For this you can use the company’s financial data and prospectus. If you have any question related to IPO then you can ask us through below comment box.
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