What is IPO? | How Does an IPO Work | Some Useful IPO Terms

Thousands of companies trade on NSE and BSE. These companies are from inconsequential companies to big giants like Nestle and Britannia and Reliance. Some in consequential companies have very less market capitalisation. All these companies had started at some point of time.

The millennials are searching different ways to invest and grow their money. With advances in technology many people are opening up for new age investments. But do you know how does an ipo work?

People are interested in investing through safer mode of internet options. In recent times we are seeing a lot of IPOs being released in India. With developments you need to invest smartly. Before that you should know the basics.

You should know about the sector in which you are investing your money. You should not confuse with IPO and its intricacies such as standard terms associated with it.

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What Does IPO Stand For?

INITIAL public offering

IPO stands for Initial Public Offerings. The companies release Initial Public Offerings or IPOs which gives them a leverage to convert from private companies to public companies. By release of IPOs, these companies are attracting investors to raise capital.

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What Is IPO?

Initial Public Offerings or IPO is a process to convert private company to public company. IPO is issuing shares to public and raise the fundings. It is great opportunity for the public to invest and gain return on investment specially for a good company.

At the inception, private company grows on the funds from founders, investors and stakeholders.

Once the company has reached specific goal and management realises that the company can handle Securities and exchange Commission regulations and grow with diversification, then the company can decide to offer IPO.

Thus, once a company releases IPO it offers stake holding to general public through shares.

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What Is IPO Stock

Private companies work with various investment banks so that they can bring their shares to public. This requires a lot of marketing, diligence, and regulatory requirements. The IPO are difficult to get for small investors.

It is generally stored for large investors such as banks and hedge funds. These small investors can later purchase the shares once the company is IPO-ed.

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About First IPO of The World

The Dutch are the financial innovators. The foundations of modern financial systems are led by Dutch. The first ever modern IPO was released in March 1602. The Dutch East India Company opened shares to public so that they can raise capital.

Thus, Dutch East india Company was the first to release IPO or issue bonds and shares of the stocks to general public.

Dutch East India Company or VOC became the first company to officially traded company and to be listed on official stock exchange. In United states, the first IPO was released by of Bank of North America around 1783.

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How To Buy IPO

Now that you might have heard a lot about IPOs being released in India. You would be inquisitive about how to buy the IPOs. However, before you invest in IPO make sure you consider following factors.

1. Before investing, check about the investment criteria. These criteria include your risk appetite, investment capital and finally your long-term financial goals.
2. Before you invest go through the company’s fundamentals, historical performance, and valuation.
3. Pay attention to the company details such as expansion ideas, forays, company’s plan of action.

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Once you have decided on these factors you are set to invest in your choice. Before you start the process of investment, you need to open a Demat account as well as a trading account. You can trade shares with your trading account.

Demat accounts are typically required to purchase shares in IPO. However, if you wish to see the shares later on then you need Demat as well as Trading account.

The investor can apply for IPO Stocks in India by filling an online IPO application. The IPO application is offered by the stockbrokers and banks.

Brokers offer UPI-based online IPO applications. The banks offer both UPI as well as ASBA IPO applications.

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How To Launch IPO

If you want to release the IPO then you need to know the process for the same. Below is the process for releasing the IPO.

1. The very first step for releasing IPO is to hire an underwriter or Investment Bank. An underwriter takes care of the company’s capital raised by through general public.

2. Once you have hired a Underwriter or Investment Bank, register your IPO in which you need to prepare registration statement along with draft prospect which is known as Red Herring Prospectus.

3. Post the registration, verify the same with SEBI. SEBI is supposed to verify the prospects given by the company. Once SEBI has approved your IPO, make an application to the Stock exchange for floating its initial issue.

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4. Once you are listed on Stock Exchange, reach out to public through various media and create a buzz. Arrive at your pricing and allot shares once the IPO is out.

5. The time it takes for a company to go public vayr based on company to company. The time taken depends on the company’s size and the way the company choose to go public. The choices available at various steps of IPO process also affect the time of launch.

6. All of these factors influence the length of time which is taken to execute the IPO. Generally, the minimum time required is approximately six months. The initial public offering (IPO) process will take at least six months to complete.

However, the maximum period of time can range from 9 months to a year. So, on average, it takes six months to a year to finish the entire process of going public.

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Some Useful IPO Terms

Exchange: The stock exchange is the where the IPOs are listed to be shared with general public. Mainline IPOs are listed on BSE and NSE. The platform on which SME IPOs are listed are NSE EMERGE or BSE SME.

IPO Open Date / Issue Close Date: The date on which IPO shall open and close the bidding process. Only in this time an Investor can apply for the IPO.

Lot Size: This is the minimum count of shares an investor can apply for in an IPO. If a lot size indicated is ‘400’ then it means that an investor needs to bid for at least 400 shares.

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Issue Price: The price per equity share is called as Issue Price. There are 2 types of IPO’s. One is Book Building and the other is Fixed Price IPOs. Book Building IPOs will have a price range and investors need to bid within the price range. Fixed price issue means the price is a specific number to be bid while buying.

Issue Size: The total monetary value of the IPO. The total monetary value is multiplication of number of shares offered by company with the price of per share.

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Top 10 IPO of The World Of 2021

The top IPO listed till date across the world are as below.

1. Alibaba Group Holding Limited
2. Agricultural Bank of China
3. Industrial and Commercial Bank of China (ICBC)
4. General Motors Company
5. NTT DOCOMO, Inc.
6. Visa Inc.
7. AIA Group Limited
8. Enel
9. Facebook
10. Deutsche Telekom AG

This basic information would help you to select and invest in various IPOs which are being released in the market.

Initial Public Offering (IPO): FAQ

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