Companies introduce IPOs to generate capital for their expansion or reducing debts. The company sell its shares and generate capital from investors to grow their business and eventually the share price increases. If you are keen about upcoming IPOs in India, you need to keep few things in mind before investing in IPO. Below listed are few factors which you should consider while investing in IPO.
Research about the company background is an extremely important step before you invest in shares of any company. You need to scrutinize the whole company prospectus and read it thoroughly. You can also get your hands on financial prospectus from the SEBI website. You can read about the financial performance of the company, reasons behind the IPO issue, management performance, dividend policy, so on. You can use the internet to understand financial terminologies and get more insights about the company. You should also know about the legal disputes of the company. In this process, you may identify any weak spots of the company. Only after thorough research, you can make the confirmed decision of investing in an IPO. Learning how to invest in IPO shares can be tricky but thorough research will solve your many questions.
You must understand the future prospects of the company and its future growth plans. Understand the reasons behind the IPO issue before you decide to invest in the company. You can research and learn more about the future plans of the company. Get information about how the generated capital will be utilized by the company for its growth. Research if the company is going to use the capital to pay off the debts or for expansion.
Check where the proceeds raised from the IPO will be used. If the company decides to use the capital to pay off only the debts, then it isn’t a very efficient use of the money you invest. But if the company decides to use half of the capital for debt repayment and others for expansion then you can consider investing in the IPO. When your money is invested in the business expansion chances of good returns increases.
Evaluating the valuation of the company is also an important step before you invest in an IPO. Draw a comparison between the valuation of the company and its competitors from the same industry. You can calculate different factors like price to earnings ratio, price to book ratio, and return on equity to get a better idea of the company valuation.
The IPO company issues limited shares during the initial IPO. Allocation of shares is pre-decided including the retail investors, different numbers of shares are allocated to a different category of investors. Many times it happens that the number of applications is higher than the number of shares which will be issued by the company. So, the allotment is done accordingly, and a different number of shares are allocated to different investors. You may receive a lesser number of shares than what you applied for.
In the prospectus, you will find all the details related to the organization - business of the company, details of the financial statements, capital structure, management views, so on. The prospectus gives you all the information about the IPO with which you can decide on investing in the IPO.
Read below to learn how to purchase IPO shares in India.
On the internet, you will find information on upcoming IPO in the share market. Once you decide which IPO you want to buy you can invest through various financial institutions.
Hope with this you have understood how to buy IPO online. With so much information on the internet, you can easily get your hands on almost all the information related to the new upcoming IPO in India. Use different tools and resources to get this information before you decide to invest in an IPO.
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