IPO
You might have always heard about this particular company being live, which is called An IPO, or Initial Public Offering, through which a private company sells shares of its stock to the public for the first time, becoming a publicly traded company; the company gets to raise capital for its growth, repayment of debts, etc., while the public gets to buy their stock and become partial owners.
How an IPO Works
Prior to IPO, a company is considered to be in the realm of Private. During this pre-IPO phase, private companies have grown with a comparatively few number of shareholders-initial early investors mostly comprise the founders, families, and friends, while others are professional investors such as venture capitalists or angel investors. The IPO is a giant leap for companies since it provides them access to raising a hefty amount of money, which further develops their capabilities to grow and expand. Increased transparency and shared listing credibility can also help them get better terms when raising borrowed funds too.
How to Apply for an IPO?
To commence investing in an IPO, one should open a demat or trading account. The requisite documents for opening a demat account are
Post establishing your trading account, once in the IPO, you can apply through one of the two methods available:
ASBA Facility: ASBA means Application Supported by Blocked Amounts. You can apply for the IPO on the bank's website using the ASBA online facility. First, log in to your net banking account using the customer ID and password. Search for the "request" tab on the left-hand side of the screen. Scroll down and look for the IPO/Rights Issue option. On the next page, a list of IPOs and rights issues that are currently live will be shown. Click on 'Apply' against the respective IPO you wish to apply for. The next page will request you to provide some information: the number of shares you wish to bid for, your bid price, and your date of birth.
UPI-For UPI investment, log in to your trading account and select the IPO you want to invest in. Input the price at which you want to apply for shares and state the number of lots. Fill out the application form and share your UPI ID. Approve the request for blocked funds through the UPI application, and you're done.
What is the Purpose of an Initial Public Offering?
An IPO is essentially a huge fundraising method for larger companies whereby the company sells its shares to the public for the first time. After the IPO, the company's shares will be traded on a stock exchange. Some of the key reasons why IPOs are done include raising capital through the sale of equity shares, providing liquidity to its founders and early investors, and cashing in on a higher valuation.
Conclusion
An IPO is a huge leap for any company that changes its status from privately owned to publicly owned. It uses the funds to grow, repay early investors and debts, and invest further in research and development. The IPO, however, does not guarantee returns for investors, and in fact, the company may take several years to realize the benefits of potential profit from that investment.
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