The market is following new trends these days and the big investors are enjoying this game. Here we are going to talk about ‘Initial Public Offering’ or IPO. It deals with some kind of public offerings according to which company shares are sold to some specialized institutional investors and they are further sold to general public. If you are still little confused about the term and want to have a clear idea so that you can plan some profit out of it then keep reading the details below.
What is Initial Public Offering or IPO?
As companies need money in a large amount to keep their workspace functional so they often use to follow two common techniques, first one is to take more loans from banks or other financial sources and the second most useful way are to raise their own capital with the help of shares. Note that, each share used to be a part of that company so selling some portions of these shares can lead to easy flow. When you buy those shares then you actually hold a part of that company as well as its associated profits. This share trading use to happen in primary market but when they are bought by investors then they get assigned to a secondary market and then their trading begins on daily basis.
How can you invest in IPOs?
There are two options for investors; either they can choose to get shares via fixed price method or the second choice is to use book building technique. Note that, in case of fixed price shares, the rate is decided by the owner company itself whereas for the second case the shares are sold on the basis of bidding. You can bid as per your abilities within a pre-defined range.
Benefits of Investing in IPOs:
The term stock market is completely a betting system where people take chances on the expected future growth of a company. If you buy shares timely, you can expect to stay in safe position because it will naturally bring more chances of big profits with continuous price rise. With IPOs, you can become the very first investor with the company potential. The best part is that these shares use to have unlimited growth with years and you can expect a big amount as a return after few years.
Risks Involved with IPOs:
Here is one interesting fact to know that IPOs are often generated by new companies so these investments involve more risks. Investors have to make decisions about expected growth of the company. In case if the company is not able to maintain its promises after IPO than shares may tank and investors may lose more money. Also, such unlisted companies do not use to have any track record of their financial performance so investors cannot collect insights about the future possibilities.
Investors are always advised to collect clear idea about company’s financial performance to have safe investments and for beginners; it is good to start with a low amount that they can afford to lose without any major harm.