What is an IPO or Initial Public Offering?

  • IPO or Initial Public Offering is the process through which a private company goes public by offering its shares to the public for the first time. The name of the Company gets listed on stock exchange. It can be a new company or an old company that thinks of going public by selling its shares.

    Reasons for raising IPO by companies:

    • Raise funds for expansion of its business and services, invest in infrastructure or repay loans etc.
    • Increase liquidity
    • Adds to its credibility
    • Open new doors for mergers and acquisitions

    As an investor, you should keep in mind the following points while putting your money in an IPO:

    • Check the Red Herring prospectus for the IPO details and fund utilisation plans.
    • Be cautious and go through the fine prints before putting money.
    • Analyse the credit background and company's financial performance.
      You don't have to become a financial expert. Just get a brief idea of the basics to make yourself financially aware of where you are investing your money.

  • IPO (Initial Public Offering) is a great way of raising funds by a private comapny from the public sector for the first time. It helps the buainess to elaborate and widen its wings in its respective field. A challenging way as well, as it is really difficult to attract people for investments.

  • Banned

    IPO or Initial Public Offering is an excellent way of involving the mass public within your company. This is a good way of expanding your horizons. The money generated through it can be used for expanding the companies operations. But before launching an IPO, the PR team needs to run a strong campaign.

  • @arribe Any idea how to select a good IPO? We hear of so many new IPOs but get confused which one to select. As a retail investor, what crucial points one needs to consider before putting money in IPOs? Any experiences you can share.

  • @harleen As a retail investor, choosing an IPO seems to be a difficult task especially for me. Company raises funds through an IPO. But, it's not easy to select the best IPO. I have heard that one needs to be cautious while putting money in IPOs. Is it true and to what extent? Not every IPO is a good choice. So, how to decide which IPO to subscribe? If an IPO is oversubscribed on day 1 does that mean its doing fairly good? I have very less idea on IPOs, mentioned what info I have gathered from friends. Can anyone guide in this.

  • An IPO or an Initial Public Offering is when a company decided to go public. Basically a company issues its shares to the public through an IPO. Through the shares that are made public, the company earns the capital investment, which is utilized by the company for its functioning.

    There are a number of reasons as to why a company goes public. The reasons could be to raise capital for growth, increase public awareness, allowing early investors to sell their stake to earn money, etc.

    Once an IPO issue has happened, investors therefore have the opportunity to earn a share in the company.

  • A good way is to go through the Company's Red Herring prospectus. You can get a brief idea about its business plan and objectives of issuing an IPO.
    Going through its financial statements and analysing them might not be possible for common man. But, you can have a quick review of debts, whether the IPO is to repay debts? Check for Company revenues, profits etc. Most important, at what price the shares are being offered? Price Earning or PE ratio is a good indicator.

  • @ishu Nice explanation 🙂 Yes, Prospectus contains ample amount of information about the company's financial details. Primarily, as a retail investor, we can know the objective of issuing IPO. Why the company has issued this IPO? PE ratio and Return on equity are few techniques used to judge the valuation and position.

  • @harleen I really get confused which IPO to go for? I am not from a financial background so analysing the company financial details seems a bit difficult. Yes, but I can understand the basics by reading the prospectus. Is there an easy way to know which IPO to invest? Any feedback on it.

  • Banned

    Thank you for sharing such interesting facts and the precautions to be taken by the investors with an Initial Public Offering (IPO).Retail investors might find it difficult to invest with the IPO.Because they have the thinking that the company is going public due to the lack of funds and it is a risk to invest in it now.

  • @harleen I like direct investing in stocks. I know that's risky. But, I invest only the excess amount I have. I haven't opted the IPO route.

  • Hi, Yes direct stock market investing and trading suits investors willing to take some risk. You can see huge fluctuations in stock prices owing to different factors. So, one need to be very cautious before stepping into the stock market. If you are not satisfied and wish to play safe only, then better look for risk free investment options.


Disclaimer: Any views/recommendations expressed in the forum, of the individuals are their own only. Fintrakk doesn't endorse or recommend any financial product or views by the users of the forum. The information/comments on the forum should not be considered as a financial advise. Please do your own due diligence before investing. Fintrakk is not responsible for any financial loss to any of its visitor/user.