In today’s information, we are going to know what is IPO, and what is the full form of IPO. Does investing in IPO really double the money in a few days? How can we invest in IPO? There are also disadvantages to investing in IPO.
What is IPO?
The full form of IPO is Initial Public Offering. When any company lists its shares in the stock market for the first time, then that share is called IPO.
When a company wants to expand its business, it needs more money, but if it does not have that much money, then it will sell its shares in the stock exchange company to go to the stock market, and people from the stock exchange company, that is, traders Will buy the company’s share and that company will get money in exchange for that share.
And when the company gets money by selling its shares from people i.e. traders. So it increases the business of its company and when that company increases its business, it will get more profit than that. But it is not that all the companies will grow further, some companies are such that they get drowned later.
What does a company need to go for an IPO?
When a company needs to increase its business, then that company issues an IPO, apart from this, even if a company is in debt, it can take money from the public by issuing an IPO.
When the company feels that its business is growing well and more money is needed to take it forward, then that company has three options.
- The company can take a loan from a bank
- The company can take money from relatives
- The company can take money by bringing its IPO into the stock market
If you take a loan from the bank, you will have to pay interest there and if you take it from the concerned relatives, you will not be able to get that much money.
The best option is when the company brings its IPO, then it announces in public that anyone can take a stake in our company, so let’s understand it with an example.
Example- There are 7 friends and together they decided to open a company of their own. Whenever money is needed for setting up a company, then each friend withdraws ₹ 100000, which in total has become ₹ 700000. They took ₹ 700000.
Established a company, initially, the company gets 100 customers, gradually the company starts growing, then the customers of the company start coming from different cities, now the company has its presence in different cities of the country like Mumbai, Chennai, Kolkata. There is a need to open a branch.
Because the customer base of the company starts increasing, the business of the company starts increasing so much that there is a need to open 1010 branches of the company in every city, but the company needs more money to open so many branches.
The company needs 2000000 rupees and if the company has to open 50 branches then in total 100000000 rupees will be needed which the company does not have now but the company is growing and moving forward but the company does not have money to open a new branch.
So now the company will bring its IPO in the stock market from where it will collect money by selling a stake in its company to the public and it will invest in its business i.e. it will make a branch and as the company grows it will give its profit through bonus to its share friends.
Will give In today’s time, no private company can take money from the public, it is illegal, if any company is private then it cannot take money from the public. But here if the company will register from private limited to public limited by following the guidelines of SEBI.
And if the company has to bring its IPO into the stock market, then some rules apply to it and the company which follows the rule of law can use it in the market whenever the IPO of the company has to be brought.
If there is, then he has to give all the details of his company to everyone, he has to tell in detail whatever money will come from the IPO, and how and where the company is going to invest in the business.
Who can invest money in IPO?
If an IPO is launched. So to buy that IPO, which inverter IPO can be bought, let’s know about it, then three types of people can invest in it.
- Qualify institutional buyer (QIB)– There are people who have a lot of money, you must have heard about mutual funds, then natural funds can invest their money in IPOs. And apart from this, you can invest in the IPOs of many big companies. Insurance companies also come. So first of all there is a 50% reserve for IPO mutual funds and big companies.
- Non-institutional investor (NII) – Now the second number of people who invest in IPO are NNI. You must have heard about High Network Individuals (HNI). IPO reservation is done.
- Retail investors – Retail investors are those who invest less than two lakhs, so how much money do you want to invest, if you invest less than two lakhs, then you will come in the category of retail. There is a 35% reservation for retail investors in the IPO.
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How is there more profit from IPO?
When a company brings an IPO, suppose it brings its starting price of ₹ 100 in the IPO. And when that company is listed in the stock exchange i.e. NSC and BSC then it can happen. It gets listed at ₹ 200 because when the company gets profit, it lists the share price in the stock exchange by increasing it.
So if you had invested ₹ 50000 in IPO, then it will be doubled i.e. its price will go up to ₹ 100000, in the same way, more profit is made in it. When a company brings its IPO, it gets listed in NSC and BSC within 10 days. So you can get maximum profit in minimum time.
To invest or not to invest in IPO?
If you do good research about the company and if you think that the company will do well in the future, then you should spend money on the IPO of that company, before buying the IPO shares, do a thorough analysis of that company Should be done.
When DMART was launched in the IPO market its price was ₹295 and when it was released in the secondary market its price went up to ₹600 in 2 days and till November 2017 the share price of DMART went up to 1120. Meaning if you invest in the right IPO, you can get a good amount of money return.
So in today’s information, we have to know the complete information about the IPO, if you have any questions related to this information, then you can ask them by commenting.