Initial Public Offering 2020 – IPO Basics

 



Initial Public Offering or an IPO is an essential part of the financial markets. It is the starting point for any company which has shares being traded on the stock exchange. IPO refers to the first offer, which made to the public for selling the shares of a private company. Before an IPO, a private company may have sold its shares to employees, a private equity firm or a venture capitalist privately. In the public offer, the private company may be issuing new shares publicly, or the promoters may be selling off their stake in the company. Either way, this offer, if successful, makes the firm 'public'. A company cannot put the words 'Pvt—Ltd.' at the end of its name after a successful offering. The company's share becomes tradable on the stock exchange on the day of its listing.

The process of IPO listing can be understood with the following steps.

SEBI Approval

A company files all the necessary documents and financial records with the SEBI to receive approval to go public. It is the first time the news of the IPO planning is made public.

IPO Preparation

After SEBI's approval, the company, with the help of merchant banks and investment banks prepares for issuing shares to the public. During this phase, the price of the shares and the quantity of share issue is decided. They make presentations to various big banks, investors and fund houses to buy the shares.

Filing of Prospectus

A draft red-herring prospectus is filed by the company with the stock exchange, which contains all the details of the IPO. It indicates the financial position, performance, listing price band, issue size and the risks associated with the investment.

Offer Period

The company's IPO is available for subscription for a pre-specified period, allowing the public to bid to buy the shares. The IPO either has a fixed price per share (called Fixed Price IPO), or it has a bid price range (called Book Built IPOs). A willing retail investor can participate in IPO by applying for it through his broker or his bank. There is no need to pay for the shares upfront, rather an amount equivalent to the bid amount for the shares is blocked by your bank account. If the shares are allotted, the bank deducts the amount automatically. Otherwise, the amount is unfrozen.

Allotment Day

This is the day, the merchant bank or investment bank leading the offer allots shares to the subscribers. In case, the shares are oversubscribed, each investor is assigned one lot of shares in a random lottery system.

 Listing Day

The day the shares become available to be traded on the stock exchange is known as its listing date. The opening price for the shares is decided by market supply and demand, known as its listing price.

Most people view IPO investment as a lucrative investment opportunity. A lot of IPOs of good companies are in high demand. Thus, the listing price is usually 50-60% above the issue price generating high returns for the initial subscribers of the IPO.

To know more about our services, including IPO application, contact us and open an account with us today. We're the best financial advisors in Surat. Start your investing journey today.




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