Should I Invest In Upcoming IPO?

Why Do I Need Investments?

Money is the basic need. We all need money. There are 2 main ways of generating money. Either one can work and earn money (for yourself or for your employer) or invest money to make more money.

There are many people who only prefer one way of generating money, and that is by working. However, investment (mostly ignored by a large number of people) is also a very important way of generating money. If you work and earn then the investment is like an add-on, and for sure there is no one who does not like more money.

There is the various reason because of which investment becomes an equally important option for money generation.

1. Financial Security/Independence –

If you are only dependent on your work income, then you and your family are a little insecure. In a situation like epidemics, natural disasters, or financial crisis, there is a lot of layoffs done by the organizations.

Even if you run your own business, you will suffer a loss, unless you have this another way (investment) of getting money in your pocket.

You even don’t need to depend on any help from outside for your survival. So, investments make you more secure and independent, financially.

2. Higher Returns

Though this has many factors associated with it, still this is a luring reason for many people to come into the investment world. People can still earn from saving money, like from a saving account interest but investing the same money into other options can give much higher returns.

3. Financial Goal

Everyone has some or other needs or desires to be fulfilled in their lives. This becomes much easier if they have an investment to back them up.

Why IPO?

Now, like there are several options in the market for working and earning money, similarly there are several options available for investments also. One has to be careful, planned, and analytic in order to choose from the wide range of available investment options.

What type of investment to choose from, is affected by various factors. Pointing out some of them –

The objective of Investment – Are you looking for higher returns, a secure future or you have any particular goal like buying a home, saving tax, etc.
Age and time – This means at what age and at what time (market situation) you are opting to invest.
Risk – This varies from individual to individual. How much risk you can gauge has to be assessed.
Income and Lifestyle – The higher one’s income is the riskier investments he/she may choose. Costlier the lifestyle is, the lesser inclination towards investment can be seen.

There are Numerous Types of Investment Options Available in India. The Common ones are –

Equity
Mutual Funds (Debt/ equity)
Bank Fixed Deposits
National Pension Scheme
Provident Fund
Govt. Bonds
Real Estate
Gold

IPO (Initial Public Offering) falls under the category of Equity. When a private company needs to raise money, then after fulfilling the SEBI norms it announces to sell its shares in the public. That is how it comes into NSE/BSE and becomes a listed, public company.

The first time when it offers its shares to the public is known as an IPO. Now, out of all the existing options, why choose IPO. Let’s analyze it a little to understand it better.

Strength	Weakness
One can get the shares of a growing and efficient company at a real less price, as it’s entry-level.	There are chances that even after applying for an IPO, you do not get any shares in your account. The reason for this could be oversubscription, invalid application form, etc.
As compared to other stocks that are already floating in the market, IPOs have better transparency and are little more controlled in terms of price, as the exact price or the price range is pre-fixed.	Even if the issuer company is good, a lot of things do depend on the investment bank which is handling the IPO issue for the company. Bad advertising, lack of awareness can affect your returns.

Opportunity	Threat
If all the related circumstances are in favor, the stocks may turn up into a huge success and one can get high returns.	The company offering its IPO, may not be able to cope up in the market and fails to perform.
If you are not looking to sell it up in the near future, IPOs can give big returns in the long term and fulfill your financial goals.	If this is the case, there can be an unexpected loss in the future. The stock market can be bearish and you may not get good returns from the stocks.

How to Select which Upcoming IPO to Invest in?

You cannot apply for the IPOs that are already closed for bidding, so only you can wait for the IPOs coming up in the near future. You can get to know about the upcoming IPOs through newspapers and TV ads. The big question that lies ahead is that should I invest in this IPO.

The Homework has to be done by you to Hunt Down the Best one. Few points to focus on are –

1. Get to Know Them

The company that is issuing its IPO is new in the market, still, you need to find out about it in different ways. Like, reading it prospectus, getting details online, papers, etc.

Search about its history, its business, its competitors, its growth plan, vision. Although it becomes a bit difficult for individuals to fetch more corporate details, it is a required step.

If an IPO is oversubscribed by the institutions, one can think to say that it’s a trustworthy IPO.

2. Promoters

The founders and promoters of the company should always be watched. As per the regulations, the promoters of a company must hold a minimum of 20% after the IPO.

If the company is really good and is in its growth phase, the promoters will hold more shares, on contrary if they want to sell it off and escape, the motive is clear. The remunerations and drawing of promoters will help you judge this.

The higher these are, the more suspicious you should be.

3. Cause

The main reason behind issuing IPO and raising funds is what? This answer is needed. There have been instances when companies have issued IPOs in order to raise funds and pay off other debts.

Growth is not always the sole reason. So be careful and find it out.

4. Price

It’s not that only famous companies can do well with their IPOs. Even the smaller companies can show good performance, hence raising their share price later on.

Compare with the competitors and find out about the PE (Price earning) ratio. The higher ratio shows that the IPO is overpriced.

At The End

IPOs at times are also over hyped by the market rumors, hence it’s required to keep your eyes and ears open once an IPO is coming. You can always check for upcoming IPOs online or with your broker.

The sooner you get to know, the more time you get to do your homework, before making a bid.

Always remember, even if once your choice or your fate goes wrong, doesn’t mean it’s the end.