One of the queries most Share Market investors have, especially those who have never applied for one, is how does IPO Investment happen? This is because IPOs are slightly different from regular market investments. When a private company wants to improve its cash flow and raise funds to operate its business smoothly, they consider raising funds from the public.
This process is called Initial Public Offerings. As such, the private company goes public by launching IPOs. Experts verify the company’s health and then allow the launch of IPO.
They get launched in the primary market, and the company then raises a specific amount through it. Interested investors need to apply for IPO beforehand, and shares get allotted to them a few days after its launch. Once the IPO gets introduced, the company becomes a publicly-traded company and shares are bought in the secondary market.
How to apply for IPO?
Investing in IPOs is quite a gamble. You need to consider the company’s performance, management team, and upcoming plans before investing in them. You also must follow a specific process, from decision making to the allotment to application. The steps include:
Decide the IPO
Companies launching IPOs announce their launch on several news platforms much in advance. You need to decide whether to apply by researching their stories and reading the company prospectus. The prospectus is accessible on the SEBI portal. It gives a decent idea about the company’s business plans and objectives.
Avail of the application form
Get the application form once you have decided the IPO to apply for. This is possible through an investment agent, distributor or broker, or visiting a nationalised bank. Also, an application is possible online on the company’s website.
Fill out the application form
Input details regarding the amount you wish to invest or the number of units you want to buy and your personal details and Bank Account details, where the sum gets debited to purchase IPO units. You also must open Demat Account and provide its number to receive IPO units, and input your PAN card number.
Once you apply, wait to receive a corresponding number of units. It typically takes 10 days for IPO units to get allotted. Note that you may get fewer units than what you applied for based on the IPO demand.
Investors interested in IPOs should also understand stock exchanges thoroughly as IPOs happen over the Bombay Stock Exchange. Sensex Index is a term used with the market index. It consists of 30 financially stable companies listed by the BSE, chosen based on different sectors and free-float market capitalisation.
You need to know Sensex as an investor because the IPO you may have invested in maybe a successful launch if it falls under the BSE top 30.