What is IPO (Initial Public Offering)
The IPO is issuing fresh shares to raise investors’ capital and listing those shares on a stock exchange. Its objective is to get funds required for growth from outside sources and create liquidity for existing investors. An unlisted company (A company which is not listed on the stock exchange) announces Initial Public Offering (IPO) when it decides to raise funds through sale of securities or shares for the first time to the public. In other words, IPO is the selling of securities to the public in the primary market.
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Companies decide to go public when they earn profits and capital returns and if the public demand for the company’s share increases. This process is also known as Initial Public Offering or an IPO. In the initial days of a business, it is aided by promoter funds that include the entrepreneur’s savings.
The IPO process involves issuing fresh shares to raise investors’ capital and listing those shares on a stock exchange. Its objective is to get funds required for growth from outside sources and create liquidity for existing investors.
In an IPO issue, investors can buy shares of the issuing company by investing money and become shareholders of the company. Depending on their shareholding, shareholders are entitled to dividends, bonus shares etc based on the earnings of the company and declaration by the management of dividends or bonus issue.
If you participate and buy stocks in an IPO, you become a shareholder of the company. As a shareholder, you can enjoy profits from sale of your shares on the stock exchange, or you can receive dividends offered by the company on the shares you hold.
During an IPO, the promoters sell off their shares to the public. The idea is to make as much money as possible. There could be venture capitalists who had invested in the company in its initial days. They would like to exit the venture by making hefty profits and then investing in some other business.
IPOs generally involve one or more investment banks known as “underwriters”. The company offering its shares, called the “issuer”, enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares.
Yes: The biggest risk factor in applying for an IPO is that you will not guarantee of receiving the shares. The mechanism of buying Pre-IPO shares distribution is subscription based, which means that any number of individuals can apply for it.
Eligibility norms required to apply in an IPO
This is depend on IPO bid lot or market lot size or minimum order quantity.
IPO price is the price at which a company’s stock is sold to accredited and institutional investors right before the stock trades on an exchange. The purpose of the public offering price is to attract investors to buy the shares. The investment banks that underwrite a company’s public offering set the IPO price.
Minimum 1 lot of shares (i.e. 100 shares in the above case) is the minimum which can be allotted. Allotment of shares which is less than the lot size is not allowed as per SEBI Norms. The no. of shares which would be allotted cannot be pre-determined before the closure of IPO issue.
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