Rediff.com« Back to articlePrint this article

Investing in IPOs: What First-Time Investors Must Know

Last updated on: July 11, 2024 10:40 IST

Are you a first-time IPO investor?
Even if IPOs appear attractive with expectations of high returns, they come with risks and complexities, cautions Sheetal Jhaveri and shares her checklist to help you navigate through the world of IPOs.

rediffGURUS

Illustration: Dominic Xavier/Rediff.com
 

In a company's existence, the initial public offering, or IPO, is a significant event. For the first time, a private business offers its shares to the general public, opening the door for fresh capital, more publicity and the opportunity to own part of the company by individual investors. But even if IPOs appear attractive with expectations of high returns, they come with risks and complexities.

This guide aims at equipping beginners in the stock market with critical knowledge that will enable them navigate through their first IPO.

Understanding IPOs

What is an Initial Public Offering (IPO)?

A traditional IPO is when a private company sells newly issued shares of its common stock to underwriters (that is, investment bankers), who resell the shares to institutional and retail investors on a stock exchange. But the main question remains:

Why Companies Go Public?

Raising Capital: Companies usually go public mainly to obtain funds. The funds raised through IPOs are employed for various purposes, including research and development, marketing activities, and acquisitions, or repaying debt.

Liquidity for Existing Shareholders: An IPO is an exit strategy for early-stage investors and employees who own equity in the company.

Improved Credibility and Visibility: The status of being listed boosts corporate reputation, attracting potential partners and employees.

The IPO Process

The whole process before the launch typically takes about six to nine months. There are numerous processes that a company undertakes before they become public as underlined:

Key Considerations for First-Time Investors:

Investing In IPOs? Consider these factors

How To Participate In An IPO?

Misconceptions about IPOs:

Conclusion:

For novice investors who want to invest early in a corporation's life cycle, purchasing its shares at an IPO can be exhilarating; nonetheless, they must approach this form of raising capital with carefulness, extensive studies and recognition of risks.

Information saves individuals from costly mistakes. Some authors also recommend prudent investment strategies for individual investors to make well-considered choices at IPOs

Sheetal Jhaveri, MBA (finance) and a certified financial planner, is the founder of Dhanplanner, an investment advisory firm.


Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this QnA or an attempt to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

SHEETAL JHAVERI