Initial Public Offering
Posted by Creditkaro
Whenever you’ve heard something about trading in the stock market or someone opening a Demat account, IPO does affect your point of discussion. IPO refers to Initial Public offering where the public is offered private corporation shares in new issuance of stock. When a private corporation allows share issuance to a company, it is basically raising capital from public investors. So Today you can open Demat account online, and things have become much easier than before because earlier when a company released an IPO, it was out in the business and finance newspapers in the morning.
IPO is that part of the transition of a private corporation into a public company, where the private investors recover the profit from their investment through premiums on the current offering.
Note:
it is not considered to be an offer when you apply for an IPO, but an invitation to offer, only after an IPO issuer offers you the shares does it amount to an offer.
You do not need a trading account in order to participate in an IPO, your Demat is sufficient unless you want to sell the shares on listing, in that case a trading account will be required, this is why brokers will advice you to open trading and Demat account together.
Therefor, Before you apply for shares in an IPO it is very important to know the importance of two varieties IPOs.
| FIXED PRICE IPO | Book Building |
| The price at which the shares are offered/allotted is known in advance to the investor. The demand for securities offered is known only after the issue is closed. The payment is made at the time of subscription and the money is refunded after allocation. The issue price is fixed, it is normally the par value plus the premium. | The price at which the shares are offered/allotted is not known in advance to the investor. An indicative price is known though. The demand for securities offered can be known everyday as the book is built. The payment takes place only after allocation. The price is discovered by bidding, the final price is decided based on maximum demand level. |
The company which is coming out with the Initial public offering (IPO) decides the size of the issue based on how much fund is required. Hence, An investment banker advice the company considering various factors like the accurate price range based on valuations from institutional investors and retail.
Similarly, a company typically keeps the IPO open for a period of 3-4 days in order to enable investors to apply in the IPO. So that All valid applications are logged into the system before the closure of trading on the last days.
Share allotment has been divided into three categories of investors:
Retail Investors: These investors invest INR 2,00,000 or less and are allotted shares in a way that as many as possible get the bare minimum allotment so the equity base can be widened.
HNI (High Net worth individuals) category: These investors get allotments on proportionate basis depending on oversubscription.
Institutional Category: These investors get allotted shares on a discretionary basis.
This is a popular ceremony done by the promoter of the company to announce the company is ready for trading in the secondary market. The usual process is to finalize the basis of allotment and allot the shares within a span of 10-12 days, after which the company is listed on the stock exchanges.
The share market is a huge concept in itself and there are many parameters which come into play, before an investor finally decides to invest his/her hard-earned money. So We love doing such blogs every week, do tell us if we missed out on something. Also, tell us what else do you like reading about, we might do a featured blog for you.
Till then…Happy buying!
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