What is IPO and how can I invest in it?

How to invest in IPO? This is a query that most share market investors have, especially those who have never applied for one. This is because IPO investments are slightly different from regular share market investments.

IPO stands for Initial Public Offer. When a private companies needs to improve its cash flow and raise funds to conduct business operations smoothly, they may have to consider raising funds from the public. As such, a private company has to “go public”. This can be done by launching an IPO. The company’s financial health is verified by experts, after which it is permitted to launch the IPO.

Launching the IPO

The IPO is launched in the primary market, and the company hopes to raise a specific amount through it. Interested investors have to apply for the IPO in advance and shares are allotted to them a few days after the IPO is launched. Once the IPO is launched, the company becomes a publicly traded company and shares can be purchased in the secondary market. Now let’s find out how to invest in IPO.

How to apply for IPO

Investing in an IPO can prove to be quite the gamble. You need to consider the company’s performance, management team and upcoming plans among other things before you decide to invest in an IPO. You also have to follow a certain process from decision to allotment to apply for the IPO. Here are the steps you need to follow:

Decide the IPO you want to invest in: Companies launching IPOs usually announce their intention to go public on several news platforms, days in advance. You need to decide whether you wish to apply for the IPO by researching their news stories and reading the company prospectus. The prospectus can be availed from the SEBI website. It gives a decent idea about the business plans and objectives of the company.

Procure the application form: Once you’ve decided to apply for the IPO, you need to get the application form. You can get this form from your investment agent, distributor or broker or by visiting a nationalized bank. You can also apply for the IPO online on the company’s website.

Fill the application form: You need to provide details regarding the amount you wish to invest or number of units you wish to purchase along with your personal details and bank account number (to debit sums to purchase IPO units). You must also provide your demat account number (to receive IPO units in) and PAN card number.

Wait to be allotted units: Once you have submitted the application, you have to wait to receive correspondence regarding the number of units allotted to you. It typically takes 10 days for IPO units to be allotted. Note that, you may get fewer units than what you applied for based on the demand for the IPO.

Investors who are interested in investing in IPOs should also understand what is Sensex and its meaning, since IPO trades are typically conducted on it the Bombay Stock Exchange or BSE. Sensex or Sensitive Index is a term used in reference with the market index. Sensex is the market index consisting of 30 financially stable companies listed by the BSE which are chosen based on different sectors and free-float market capitalisation. It represents a sample of large, liquid, representative companies and serves as an indicator for market movements. As an investor, you need to know Sensex meaning, because the IPO you may have invested in may be regarded as a successful launch, if it is considered on the BSE top 30.

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