What is an Initial Public Offering (IPO)?

Everything you wanted to know about IPO in simplest possible way.

Mr X has a small Burger shop X burgers . Mr. X wants to increase the number of locations so more people can enjoy its delicious Burger. Although X burgers is profitable but he doesn’t have the money to open new stores without taking debt from banks because for the loan he has to pay the interest. Mr. X doesn’t want to take on more debts so decided to sell the shares of his business to the public in order to fund its expansion plans Mr. X goes to an investment bank to SET up the IPO .The investment bank values X Burgers as 3,00,000 and decided to split it into 50,000 shares priced at 6 Rs per share, the investment bank sells 25,000 shares to the public and Mr X keeps 25,000 shares as he owns the company. Mr . X now has 150000 from investors who purchased its shares and Mr, X still holds 50% ownership in its company.

Happy Mr. X used money to open 5 new stores increasing the company’s profits and values of its investor’s shares.

As simple as that.

So, An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO. Companies fall into two broad categories: private and public to the public”

Who can invest – everybody like Me , You , Your father , Your GF or BF (as the case might be ) your neighbor , your maid , or any other you know.

What are returns – IPOs gave average 15–20% in just 15 days.
 what Proofs? Economic times of 10th June ( not sure about date)

You can buy it in slots , ( i.e. 1 slot = approx 15000)

Means 15,000 can turn into 18,000
 30,000 can turn into 36,000
 45,000 can turn into 49,000
 60,000 can turn into 72,000
 and so on.

Minimum investment : Now a days IPOs are ranging from 14,000 to 15,000 per slot,

Where can I apply : Open a 3 in 1 account in any bank . ( 3 in 1 means Trade , Demat and savings) , in your savings account active net banking , go to ASBA option , active it and apply. That’s all. Still any confusion , comment below I will clarify.

How can I make Profit : After announcing the IPO , The stock hits the stock exchange as its debut.

Ex- If you company issued 100 stocks at Rupee 150 and made debut at 180 then 30Rs profit per share or 3000 profit per slot

Factors To Evaluate In Order To Avoid Poor-Performing IPOs –

1. Company Financials: See if the company is making adequate profits over the years or not.

2. Know The Reason Behind The IPO Offering: If the company is raising the funds for expansion of the business, it will be good for the company and your investment.

3. Management’s Stake In The Company: Its wise to consider companies whose management holds a large stake in the company. This is a sign that the top management still believes in the company’s future.

4. Understand How The Sector Is Performing: Analyse the growth potential of the sector also along with the company. A sector which does not offer much growth, should be avoided.

5. Who’s Investing In The IPO: IPO’s anchor book gives prospective investors a hint about the credibility of the IPO’s performance. Anchor book subscription opens a day before the launch of an IPO. A healthy anchor book gives comfort to small investors as it indicates the faith shown by institutional investors

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