With the advent of the internet and improved accessibility, there are a variety of investment options available to the average Indian investor today. Which is why it is essential that you explore an increasingly popular opportunity such as the IPO offerings in India. Even amidst the high volatility of the market last year, as many as 8 out of the 11 IPOs listed in 2019 surged as high as 95%.
With the demand for IPOs showing a promising future in India, it might just be time to consider the question of should you invest in an IPO as well. However, before making the big leap it is best to consider: is an IPO investment right for you specifically as an investor? To help you make the decision, here are a few crucial points to consider?
What is an IPO and How Does it Work?
Before delving into whether is it good to invest in an IPO in India, let us review what an IPO is and what it achieves for an investor. The term IPO stands for Initial Public Offering, and is a means by which companies raise capital by selling shares of the company to the general public. These shares are listed in a stock exchange whereby you can buy or sell them according to market movements.
If you buy such shares of a company, you make an investment in an IPO. As an investor, if your IPO investments fare well in the market, your investment can grow exponentially and help you make immense profits. The key is to invest smartly and find the right IPOs at the right time and the right price.
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Rewards of Investing in an IPO in India
The question of is it good to invest in an IPO in India, can only be answered by understanding what the benefits of IPO investments truly are. If these benefits align with your own financial goals as an investor, IPOs just might be the right option for you:
1. Early opportunity: IPOs provide investors with the chance to get in on the ‘ground floor’ of a young and budding company. As the success of the company skyrockets with time, so does your overall investment.
2. Meeting financial goals: IPO investments are essentially a form of investment in the equity market. As such, they are known for bringing substantial returns over the course of a long time and therefore, greatly benefit long-term investors.
3. Levels the playing ground: With IPOs, the price per security has to be explicitly stated and mentioned in the order document. As a result, whether an investor is big or small, they all have access to the same price information to inform their decisions.
Important Points to Consider Before Investing in an IPO
Like all investment opportunities, while IPOs are a lucrative option in themselves, an investor should nevertheless consider certain important points before jumping in. These points can make all the difference when determining the important question of: is IPO a good investment for you or not?
1. Determine your investment priorities: Before investing in any IPOs, it is first important to formulate a clear idea of what your risk appetite, investment budget and financial goals looks like. It is only by figuring these factors out that an investor can narrow down the IPO listings that best fit his portfolio.
2. Stay informed: The selling opportunity for every IPO comes with the publishing of a prospectus. Make sure to read this document carefully and get a clearer idea of the company’s financials, market record and reason for issuing the IPO. Keep an eye out on any red flags or lack of information to make the best investment decision possible.
3. Invest smartly:Avoid getting swept away in the initial excitement or hype surrounding an IPO listing. Instead, it is best to do your own research and make a point of investing in businesses that you understand or in which you have expertise.
To sum it up, the point of “should you invest in an IPO?” depends largely on your own investment goals and how well they align with the features of IPO investments. For those seeking to make the most of market opportunities and getting an early entry into a budding company, IPO investments are ideal. It is also a good investment for investors with a slightly high risk appetite and a good understanding of the market trends.