The stock market is a world full of opportunities. IPOs are a good example of this. Here investors can invest in good companies.  On the other hand, the companies are able to accumulate the funds required to meet their business expenses. That is why, several business entities go for an initial public offering or IPO. Investing in Ipo is simple too. One can get the details of an IPO on a trading account

What is an IPO?

An initial public offering (IPO) refers to the process where a company lists itself on a stock exchange. The privately owned company goes public when it gets listed on stock exchanges. It offers shares to the general investors for the first time. After the IPO, the investors can buy and sell them just like any other shares through a trading account. When an individual buys the shares offered in an Ipo, we call it an IPO investment. Individuals can purchase the shares offered in an Ipo at a fixed price. Companies going for an Ipo are free to decide the price which is known as the issue price. 

Key terms related to IPO investments

If an individual is interested to invest in the upcoming IPOs, he must know the common terms involved in it. Learning these terminologies will help you understand IPOs. Here’s a list you can go through.

  1. Allocation – It is the quantity of shares put for sale in an Ipo.
  2. Add on offering – When a publicly listed company issues more shares for the investors, it is referred to as an add on offering.
  3. Common stock – It is a type of stock that gives ownership in a company in proportion to the shares held. Investors get voting rights too.
  4. Due diligence – It is the process where the market regulator thoroughly assesses a company going for an IPO.
  5. Red Herring Prospectus –  A draft document that provides all the information about a company. It contains financial reports, future business strategies, management structure etc.
  6. Underwriter – Underwriters, also known as investment banks are financial institutions that assist companies with the IPO process. They help a company determine the issue price, market an IPO, complete the regulatory processes and assign shares.
  7. Effective date – It is the date of registration of an IPO.
  8. Offering date – It is the predetermined date on which the IPO will go live.
  1. Offer/ Issue price – The price at which a company decides to sell its shares to the investors.
  2. Lot Size – A lot consists of a fixed number of shares. Investors have to buy shares in multiples of this lot size. It is the minimum amount of shares one can bid for.

How to invest in IPOs?

Several companies are going for an Ipo. The upcoming season also has many IPOs to look forward to. Investors are waiting eagerly for some of the best ones. For instance, the Droom Ipo is one of the most anticipated Ipo of 2022. If you want to invest in IPOs follow the steps mentioned below.

Dig deep about the company

The first step is to thoroughly research about the company you want to invest in. Read the prospectus carefully. Assess the company’s performance, financial statements, and its future prospects. Find out how it may perform in the future. Based on your assessment, decide how much you will invest.

Open a demat and trading account

A demat account is mandatory to apply for IPOs. It works as a storage to hold your shares. You don’t need to have a trading account to buy shares in an Ipo. However, investors need one while selling the shares. So, it is best if you open a demat-cum-trading account offered by IIFL Securities. Apply online and submit identity, address and bank account proofs. You shall have your demat and trading accounts ready in a short while.

Fill the ASBA form

Application Supported by Blocked Account (ASBA) allows the banks to block funds in an applicant’s account. It is compulsory to fill ASBA forms. Provide essential details like demat account details, Pan number, bidding information etc. Note that the use of a cheque and demand draft is prohibited here.

Apply for the IPO

Now, go to the trading account and search for “upcoming IPOs”. In this section you will get the list of all the IPOs like Droom Ipo. You will have to place your bids in multiple of the lot size. Specify the quantity and confirm your order. Remember, your funds shall be freezed till the allotment process is completed.

Allotment

After the completion of the Ipo, a company will finally allot the shares to the investors. Your demat account will show the share if you get them. Otherwise, the locked funds shall be sent back to your bank account. In this way, you can make an IPO investment.