You must have heard about companies heading for an IPO opening. IPO or Initial Public Offer is an opportunity for retail investors to buy shares in companies that have decided to move from a privately held company to a public company. Let us explore the IPO market and the possibilities of earning through this market.
Why companies choose the IPO route?
Private companies need funds to grow their business. These funds might be needed to expand their business, build their infrastructure or support other growth initiatives. To bring in more cash in to the business, they decide to sell a percentage of their business in the investment market. Transforming from a private company to a public company gives them the following benefits:
Investors who see potential in the company buy the shares and give them the funds they need.
When a company decides to go for an IPO, their market value can increase. Based on the company reputation, the company may end up gaining higher share value than the initial share value that was released based on company valuation.
Opportunities for growth
The company gets the cushion of additional funds which is not an interest-based loan taken from the market. The funds lead the company to tap opportunities that were difficult earlier due to limited bandwidth.
To understand why companies go for an IPO, watch this short video by CNN Money - https://www.youtube.com/watch?v=XZGvhRHvaao
Who should invest in the IPO?
Anybody can invest in an IPO. It would be ideal if you already have some experience in the share trading industry and are aware of how the market works. Seasoned investors with a diverse portfolio and the ones who are willing to hold shares for a long-term for the share value to increase can benefit from IPO investments.
How successful can IPO investments be?
IPO investments can be profitable or not so profitable based on several factors. There definitely exists an underlying risk in every investment. And some of the investors who took the risks decades ago have accumulated enormous wealth with time.
Here is a glimpse of how the value of shares have plummeted in the internet IPO market.
(Image source: https://www.statista.com/chart/1602/internet-ipos/)
With changing times, new technologies and new services replace the existing ones. Innovative companies that show immense growth potential are sought after in the IPO market. Study the market or talk to an expert to explore the market for possibilities to earn as per your short-term and long-term investment goals.
Few tips to invest in IPOs:
1. Invest in a company with a positive sales record
2. Follow selling strategies recommended by experts
3. Ask the right questions and analyse the company before jumping ahead to invest in it. Here are few questions to start with:
a. What does the balance sheet say about the company’s financial condition?
b. How good is the leadership of the company for its growth?
c. What do experts have to say about the future of the company?
d. Is there a demand for what the company has to offer in the future?
e. What are the chances and the reasons that the company might fail in the future?
f. How fast or slow has the company been growing over the years?
g. Do you have the investment appetite to hold on for a long time to reap the benefits of your investment if the company’s share prices fall suddenly?
h. If there is a shortage of funding or obsolescence of technology, does the company have the capability to sustain or will it fail?
How to start investing in an IPO?
You need a demat account and a bank account from an IPO Investment service provider to start investing in this space.
The investment market is huge. IPO is lucrative enough for investors to gain multi-fold returns. But you need to be knowledgeable about the market or seek an IPO expert’s advice before you take the plunge in this market. Only if you have the patience to invest in a good company and wait, will you have the opportunity to aim for higher gains. To conclude, think about Warren Buffett’s famous quote, “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time.”
Interested in IPO investments, visit https://www.tradebulls.in/ipo-services to know more. You can also post your doubts related to investments in the comments area.