Indianmoney Facebook Indianmoney twitter Indianmoney LinkedIn Indianmoney Google Plus Indianmoney Youtube Indianmoney Instagram Indianmoney Medium
 
 

" Enjoy the bull run. "

IPO

What Is An Initial Public Offering (IPO)?

The first time a Company sells its stock to the public is known as an initial public offer. These are mainly launched by Companies which are new, but have a very sound business model and see vast scope for expansion in their business.

An Initial Public Offering could also be launched by a Company which has been in business for a while but wants to raise additional capital by selling part of its ownership to the public. The Company launches an IPO which is called "Going Public" and raises capital by selling the stake in the Company to the public.

What are Qualified Institutional Buyers?

The Company first targets people or institutions with a lot of money. These are called Qualified Institutional Buyers.

Mutual fund houses, Banks, pension funds, Insurers and even venture capital funds are qualified institutional buyers. At least 60% of the size of the issue needs to be subscribed (offered) to the Qualified Institutional Buyers if the price is decided by the book building method.

Why invest in IPO
Great Growth Opportunity

Great Growth Opportunity

IPO gives you an opportunity to invest, right at the time the Company is listed. Ride on the growth of the Company and earn good returns.

Ride the Stock Market

Ride the Stock Market

IPO's are launched when there is a boom in the stock market. You can ride the bull if you invest in a good IPO.

Not all IPO's are Risky

Not all IPO's are Risky

Some IPO's carry risk, some do not. If you do your research, you can invest in good IPO's and get good returns at a lower risk.

Buy Low Sell High

Buy Low Sell High

If you invest in a good IPO, you automatically invest with the buy low, sell high approach. Buying low and selling high, gives good profit.

What is an anchor investor?

Anchor investors are a part of the qualified institutional buyers (QIB) and aid the price discovery process .Before the book building process is launched, the floor price and the cap price need to be determined. The QIB's and the anchor investors help to fix these prices.

In any field especially business, big names and big reputations serve as a boost to investments .In the same way anchor investors serve as an anchor or a support to the IPO. According to SEBI rules and guidelines, anchor investors need to stay invested for a period of at least 30 days. This protects retail investors from a sharp fall in prices due to excessive selling by the anchor investors.

Methods to price an IPO

Book Building Method

The method of price discovery (Finding the prices of the equity shares of the Company), is called book building. The optimum prices of the shares of the Company have to be fixed through a process known as book building.

A price range known as a price band is decided by the Company. It has a lower limit and an upper limit .The lower price (The shares will not be offered at a price lower than this), is called the floor price.

The upper price (The upper limit of the pricing of the shares), is called the ceiling price. Shares of the Company are offered within the price band.

You can bid only between the floor price and the ceiling price. The issue is then closed for subscription. The cut off price is then decided by the Company issuing the shares and the lead manager to the issue, based on the interest and the appetite of the investors to the equity (share) issue by the Company.

All investors who have submitted bids at and above the cut off price, are able to procure the shares of the Company. If you are a retail investor, then you can also apply at the cut off price (you are ready to purchase at the price decided by the Company and the lead manager to the issue).

If you have applied at the ceiling price and the cut off price is less than the ceiling price, then the excess money is refunded to your account.

Related Articles

10 September 2015, Thursday

Methods of IPO

 A Company is new but has a sound business model. Its products have great demand. Its services are selling like hot cakes. But the Company is facing a financial crunch. It needs more money for expansion. This is when the Company decides to go public. The Company sells its stock to the public...

18 November 2014, Tuesday

Risk Tolerance

Generally, the more risk involved with an investment, the higher will be the potential return. As a result, the more risk you are willing to take, the more potential your savings have to grow over a long period. Before choosing an investment, you must make sure that you understand the investment, ...

18 November 2014, Tuesday

Risks Involved in Investments

Inflation One of the steadiest risks involved in your investments is inflation. Inflation is the increase in the cost of living or decrease in the value of money, expressed as a percentage increase over last year's prices. Inflation is a simple concept that punishes the people who ignore it. Even...

Most Read Articles

18 July 2012, Wednesday

How to Make Claim on a Health Insurance Policy

Formalities for a health insurance claim You can make a claim under a Health insurance policy in two ways : On a Cashless basis and A Reimbursement Claim On a Cashless basis : For a claim on cashless basis, your treatment must be only at a network hospital of the Third Party Administrator (TP...

14 March 2014, Friday

ELSS - Utilizing the Power of Compounding

As the name suggests ELSS invests the whole corpus in equities. Proportions as high as 80-90% of equities are found in an Equity Linked Savings Schemes. It is a special kind of mutual fund that qualifies for tax benefits. Basically Equity Linked Savings Scheme is a mutual fund with a lock in peri...

07 January 2014, Tuesday

Why One Must never Neglect Estate Planning

One of the most common reason for family feuds in India as in the rest of the World is faulty estate planning. Estate planning is a neglected topic in India mainly because of the emotions attached to it. A common reason people neglect to make a will or indulge in estate planning in their younger y...

Get It now!

How about our new look!

 
Great!
Mm.. Ok
Bad