The Benefits of Investing in IPO in India

An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time. The shares are offered to investors through the primary market. Once a company gets listed on the stock exchanges, its shares are traded in the secondary market.

By launching an IPO, a company can raise funds through the capital market. It can use these funds for a variety of reasons, including expanding its business, undertaking capex, or even paying off debt.

Besides the company, an IPO is an attractive opportunity for investors too. So, what are the IPO investment benefits?

In this article, we will cover:

  • IPO Investment Benefits
  • Things to Keep in Mind

To get a more detailed understanding of what is an IPO, how it works and how to invest in an IPO, check our previous blog here

You need to have a Demat account to invest in an IPO. Open a Demat account with PL within minutes, by clicking here

IPO Investment Benefits

IPO investment is gaining a lot of popularity among investors, and rightfully so. Let’s take a look at some of the key IPO investment benefits.

#1 Transparent process

SEBI has created stringent IPO norms, and any company launching an IPO has to adhere to these rules and regulations. After receiving the SEBI’s nod, a company has to file a Draft Red Herring Prospectus (DRHP), and also file an updated Red Herring Prospectus (RHP) before the launch of the IPO. The document outlines the company’s business model, financial health, risks, opportunities, and details on why it has decided to launch an IPO. This document gives the investors detailed insights about the company. It enables them to make an informed choice about investing in the IPO.

#2 Fair access

The Securities and Exchange Board of India (SEBI) has put in place regulations to ensure that IPO investment benefits can be availed by all investors – Institutional, HNI, and Retail. As per the latest regulations, the minimum allocation for retail investors is set at 35%.

Also, in case an IPO is oversubscribed, then all the retail investors should receive at least one lot. When that is also not possible, then a lottery system is to be used to determine allocation.

#3 Convenient Bidding

The entire process of investing in an IPO has been made simple and convenient. Investors can apply for IPOs online by entering the bid, lot size, and other required details. The funds are then blocked, but do not get immediately deducted from the investor’s account. The blocked funds are deducted only if the shares are allotted to an investor.

You can invest in IPOs with PL in less than a minute. If you aren’t a PL client, then open a Demat account with us by clicking here

Next, download the PL DigiTrade App or visit our website and follow the simple steps:

  • Choose the IPO and click on Bid
  • Enter bid and lot details
  • Finish the application by accepting the UPI mandate request

PL provides instant bid confirmation from the exchanges, enables you to track your bids easily, and ensures hassle-free and automatic refunds in case of no allotment.

#4 Listing Gains:

Every IPO has a price band, comprising an upper limit and lower limit. When applying for an IPO, you can make bids accordingly. On the listing day, if the shares trade at a price higher than the offer price, then you can make listing gains.

An example of this would be when Avenue Supermarts (operator of supermarket retail chain D-Mart) made its debut on the stock exchanges in 2017. The stock listed at around Rs 604, up 102% over its issue price. This enabled investors in this IPO to earn bumper returns.

#5 Liquidity:

After a company gets listed on the bourses, its shares can be bought and sold easily. Retail investors do not have to adhere to any lock-in period norms. This enables investors to realise listing gains on the same day. Investors can also remain invested for a longer term, and buy or sell shares when they want to.

#6 Attractive Pricing

Typically, when a company launches its IPO, the shares are believed to be at a discounted rate. Thus, investing in an IPO enables investors to get early access to a company which has high growth potential. Investors can buy the shares at a lucrative price and create wealth in the long-term if the company makes it big.

#7 Long-Term Returns

An IPO is ultimately an equity investment. So, another IPO investment benefit is that if you remain invested for a long-term, it has the potential to generate good returns.

#8 Shareholder Benefits

If the shares of an IPO are allotted to you, then you become the shareholder of a company. With this, you are entitled to all the benefits that a shareholder enjoys – such as dividends, bonus shares, voting rights during the Annual General Meetings, etc.

Things to keep in mind

While the IPO investment benefits are plenty, there are also certain important things that you need to keep in mind.

Firstly, the IPO prospectus will give you a fair idea about the business and its financial health. But that alone isn’t sufficient. You should also understand and analyse the sector, other macro factors, and accordingly evaluate the company’s IPO.

Secondly, don’t invest in an IPO simply because everyone else is. It is important that your investment aligns with your own financial goals, risk appetite, and investment horizon.

Thirdly, remember that not every IPO becomes a multi-bagger. So, it is critical to evaluate the IPO carefully and then decide on your investment.

It is not easy to undertake such thorough research for every IPO with a full time job or business. At the same time, you shouldn’t miss out on a great investment opportunity due to paucity of time.

This is where, PL’s team of highly experienced professionals step in. Whether it is evaluating an IPO, or identifying whether it is the right fit for your portfolio – PL does it all.

So, start your wealth creation journey today, with PL’s research-backed advisory and personalised guidance. To open a Demat account with PL, click here

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