Do you know how companies are listed on the Stock Market? Or have you ever wondered how companies offer shares to the public? Let us help you with the answer.
It is done through an Initial Public Offering (IPO).
Before you invest in an IPO, always keep in mind that investing in an IPO is not similar to borrowing money from anyone because it always does not give guaranteed returns.
You can invest in an IPO if you are keeping track of a company’s growth or if you have a good understanding of the industry it operates.
Before we get into the guidelines of how to invest in an IPO let us know what IPO is…
IPO Meaning
It is a procedure in which a company raises funds from the general public by selling its shares.
The company which offers its shares to the general public is called an “issuer.”
The shares are first offered in the open market through an initial public offering (IPO), and then transferred to the secondary market(Stock Market), where they are purchased between the general public.
The main objective of a private company to offer its shares is to raise money. By selling its shares in the open market, the company can collect and raise funds to grow its business successfully.
Let’s take a look at the types of IPO.
Types of IPO
- Fixed-Price Offering: A fixed-price IPO is one in which the company sells its stock at a set price.
- Book Building Offering: To obtain the shares, investors must bid within a set price range. The set price is fixed by the company.
IPO Process
The IPO process begins with the recruitment of a merchant banker and requesting permission from the SEBI before being listed on the Stock Market.
The Securities and Exchange Board of India (SEBI) controls the entire IPO process.
Ideally, a company follows the following six steps to get listed in the Stock Market:
Step 1: First, the company will appoint a merchant banker who will take care of the following stages.
Step 2: Then the company must get approval from the SEBI.
Step 3: Then, the company prepares and submits a Draft Red Herring Prospectus (DRHP) to SEBI. The DRHP is a document that contains all the company’s information, such as:
A. Financial Statements
B. The Number Of Shares Offered To The Public
C. The Objective Of The Ipo, And So On.
Step 4: Subsequently, the company determines the price band, and then the IPO is promoted at least two days before the bidding process begins.
Step 5: Finally, stockbrokers such as Alice Blue begin to accept bids from the general public.
Step 6: Once the bidding is completed, shares are allotted to the general public. The stock will then be listed on the main market.
How Bidding Works in an IPO?
To apply for an IPO, you need to make a bid that is within the determined price band.
Let’s say the IPO price band is between 100 and 110. If you want to bid on the IPO, you need to do so between 100 and 110.
If your bid meets or exceeds the cut-off price, you will get the shares of the company.
Let’s say that the price range is from 100 to 110 and the cut-off price is 107.
If your bid was less than 107, you won’t get the shares.
The shares will be yours if you make a bid of 107.
It doesn’t matter how high your bid is. You will still get your shares, and you will get back the price difference between the bid and cutoff price.
After the bidding is done, the shares will be allocated to you.
How to Invest in an IPO?
How about we tell you that Alice Blue has made it simple to invest in an IPO? Let’s see how!
To begin your investment, simply follow these steps.
Step 1:
In just 15 minutes, open your free Demat account with Alice Blue. If you already have an account, then simply sign in to Alice IPO.
Step 2:
Select the IPO to which you want to apply and place your bid.
Step 3:
Once the bid is placed through UPI, the UPI App will block funds in your bank account in proportion to the bid amount (Till the allotment date).
If the shares are assigned to you, the money will be deducted from your account; otherwise, the money will be unblocked.
Now that you have a basic understanding of investing in an IPO, why wait ??
Open your Demat Account with Alice Blue and Start Investing in IPOs !!!
