by Team StockmarketX
353
In this blog, you will learn about IPOs, what are all the types of IPOs we have in India, how IPOs work, why a company needs an IPO, and how you guys can invest in any IPO.
Table of Contents
What is an IPO (initial public offering)?
An IPO is a short name for "initial public offering." It means that a privately owned company is going to list its shares on the stock exchange so that shares are publicly available to buy and sell by anyone. After this process, a privately held company became a publicly traded company.
Actually, IPOs allow investors to invest in a company.
Why does a company launch an IPO?
There are some of the reasons to launch an IPO by a company
1. Raise capital: IPOs allow a company to raise capital/funds from public investors. And the company can use those funds accordingly, as per its IPO prospectus.
2. Cash out early investors: With an IPO, early investors can cash out there profit or loss from the company by selling there equity.
3. Publicity: An IPO of a company can give a huge amount of publicity to the company, which also leads to more people knowing about that company.
4. Acquire other companies: A special purpose acquisition company (SPAC), also known as a blank check company, which raise money to acquire other companies.
There can be more reasons why companies launch there IPOs, but these 4 are the most important.
What are the types of IPOs?
Mainly, we have two types of IPOs:
1. Fixed-priced IPO
2. Book-building IPO
Fixed-price IPOs
As name suggests, fixed price means the price of a single share is fixed.
Let me explain: When a company is going to issue an IPO with a fixed price, it means that the company has fixed and disclosed its share price & share quantity before it goes public with the help of an underwriter after an evaluation of risk, revenue YoY, valuation, debt, and assets.
It means that when anyone is going to invest in fixed-priced IPOs, they know the opening price of the shares on exchange.
Book-building IPOs
Camparatively, this concept is new in India. This concept was introduced by the Securities & Exchange Board of India (SEBI) in 1995.
Companies don't know the price of their shares at the start. Companies set a price range with a lower limit (floor price) & an upper limit (cap price), and it should usually range of 20%.
Then the investor can bid on any price within that range and price of the share is decided after analysing all bids.
If the IPO is oversubscribed, then the cap price is going to be the issue price.
How do I invest in an IPO?
If you want to invest in an IPO, then you must have a demat account. If you don't have it, then click here to open it.
To get a complete guide, read here in detail.
Thanks 🙏 for reading.
