6 Essential Guidelines on How to Buy IPO for Beginners

Oct-17-2022Blog by – Mr. Ashish AjmeraRead Time: 4 Min.Word Count: 542
2426 Essential Guidelines on How to Buy IPO for Beginners
The history of Initial Public Offering (IPO) in India has never gained so much momentum as in the last two years. 52 Indian companies raised an all-time high of Rs1.11 lakh crore through IPO in the financial year 2021-22. This year 17 IPOs have already raised Rs41, 783 crores so far and there is already a tentative line-up of IPOs worth Rs52,000 crore. The IPOs of popular corporates such as Zomato, Paytm, LIC, Policybazaar, and Nkyaa have captured the interest of both first-time and experienced investors. If you are an amateur IPO investor, you should familiarise yourself with the IPOs before investing your money.
Here are useful guidelines for investment in IPO for beginners:

1. Understand the Concept of IPO
IPO refers to the process by which a private company offers its shares to the public for the first time. The private company goes public. The companies issue IPOs to raise funds for different business objectives. As far as investor benefits are concerned, IPOs give you an opportunity to:
i. Invest in a high-growth potential or disruptive company at a reasonable price
ii. Earn good returns in the long term
iii. Diversify your investment portfolio

2. Analyze Your Financial Portfolio
IPO performance is closely linked to market performance and involves risks. Hence, you should evaluate your financial portfolio. It will help you to decide the investment amount based on the amount of loss you can comfortably incur in case the IPO fails to deliver expected returns.

3. Research the Company
The popularity of a company shouldn’t be the sole deciding factor for investing in IPO. The company must have strong business fundamentals and a balance sheet. Do elaborate research on the following aspects of the company:

i. Vision and mission
ii. Background of founders and promoters
iii. Products and services
iv. Financial performance of the last few years
v. Growth prospects
vi. Competitive landscape
vii. Vulnerability to socio-political-economic, regulatory and technological environment

4. Read the Prospectus
Avoid evaluating the company based on its media coverage or advertising and marketing hype. There is no better document than the company prospectus to get the right information. A prospectus is the blueprint of a company. It is a formal document that contains all the information about the company that investors should know. It also states the purpose for which the company wants to raise the IPO.

5. Take Advantage of the Lock-In Period
All IPOs have a minimum lock-in period during which investors who have received pre-IPO shares are not allowed to sell. The purpose of this restriction is to control the share price fluctuations of the company. You should wait for the lock-in period to get over to buy IPO shares. This will enable you to evaluate the stock’s profitability and stay away from initial volatility.

6. Open a Demat Account
Be it an investment in bonds or IPOs, you need a Demat account. In case you don’t have one, you can open it with a registered SEBI broker.

IPO investment can be a complex process for beginners. Ajmera x-change, one of the leading equity investment advisory firms in India, can make IPO investment easy for you. It can also help you to open a free Demat account. Get in touch to know more.

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