IPO stands for Initial Public Offering. The first time a private company sells its shares, it is called an IPO. Private companies not listed on the stock exchange cannot sell shares directly. Through an IPO, a private company enters the stock market and sells shares. When a private company enters the stock market, it is a public company.
IPO For Business Growth
Many changes and efforts are made to grow a business Such as staff, space, facilities and others. Capital / money is required for business growth. In order to increase the income of any business, the capital required for production has to be increased. Private companies register the stock market to raise capital so that some shares can be sold. Capital is gained by selling shares and investing it in business growth.
Fewer people invest in a small business / company and these results in lower returns. However, when the business is listed on the stock exchange, the general public can also take part in the business. Anyone can invest by buying shares. It benefits both the business and the investor.
There is also the option of a bank loan to raise capital. If the company takes a loan, the money has to be repaid to the banks according to the interest rate. Whether the company’s income increases or decreases or the company gains or loses, the company has to repay the interest on the loans taken by the banks. In the stock market, on the other hand, investments and returns are made in the form of profit / loss.
- A company wants to raise capital by listing its shares in the stock market has to seek permission from SEBI (Securities and Exchange Board of India) as well as other institutions.
- The company has to publish all the information of the company and advertisement. An IPO advertisement should provide information about the financial position of the company.
- The company sets a three-day period for investors to online application. The company uses a lottery method to distribute the shares and shares are credited to the investor’s demat account.
- All refunds are made to those who did not receive shares from the IPO.
- The company is listed on the stock market a few days after the share allotment process.
SEBI Rules for IPO
The company is assessed before the Initial public offer sale is taken out and the credit is also checked. This is checked for what the share price should be, what percentage of the capital to withdraw, the auction method. Also, it is mandatory to process Initial public offer as per the rules of SEBI (Securities and Exchange Board of India).
The concerned company has to submit all the relevant information to SEBI. Even after being listed on the stock exchange, it is mandatory to abide by the terms and conditions of SEBI. SEBI is a government body under the purview of the Union Ministry of Finance. It works to control the capital market.
An individual can directly buys shares of the company though IPO. All he needs is a Demat account. Initial public offer is open for a minimum of three days and a maximum of ten days after the announcement. More people are willing to invest in it, so it is not easy to get shares. It takes a little effort to get shares.
- It is a kind of lottery. You can make a huge profit in a very short period of time and with very little risk. sometimes investors’ money has doubled in just few days.
- Big money can be made in the stock market in a very short period of time. But it requires luck, not everyone gets a share in the IPO because the IPO is distributed through a lottery.
- Investors have often suffered huge losses as well. So it is important to take all the information when investing in any IPO.
The stock market is the preferred way to make a long term profit by investing money in a company / business. An investment made through an IPO sometimes yields a huge return on the listing day. The number of investors in the stock market has been increasing over the last five years. Relevant knowledge is required to invest in the stock market.
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