The full form of IPO is an Initial public offering which is the first time when a company issues their shares to the public as the name suggests.
The initial public offering is basically when a company decides to go public and list itself in the share market where people can buy and trade shares or stocks of that company.
The initial public offering is a time when a company especially private companies become a publicly-traded company.
Anyone who buys a share of that company becomes a shareholder that means the person now has a share in that company because they have invested their money to buy the company stocks.
There are many reasons for a company to issue its IPO and go public but mainly it is to raise money from the public through investments to grow their business.
The initial public offering includes three main investor categories such as –
- Qualified institutional buyers (QIB)
- Non-institutional investors (NII)
- Retail individual investors (RII)
According to the category of the investor, the share allocation of IPO is decided. An individual often falls under the last category of Retail individual investors.
One is allowed to invest in small lots worth Of Rs 1000 to 15000 as an individual investor. One can apply for up to 2 lakh in an IPO. The retail category share demand is calculated by the number of applications received on the announcement of IPO.
However, when the demand of shares in an IPO exceeds the amount of allocation this is called oversubscription. An IPO can be oversubscribed five times over.
In this case, retail category shares are offered to individual investors based on the lottery system. This whole process is computerized so there would not be any impartial allocation of the shares in an IPO.
Reasons for IPO
There could be many reasons for the release of IPO by a company such as –
- A company issues its IPO mainly to raise capital for business growth and expansion.
- The company also announce IPO for greater public awareness so more and more people would know their product and brand.
Benefit of IPO
There are many advantages one can get by buying shares in an Initial public offering such as –
- As an IPO investor one can take advantage of first-mover for the shares of a reputed company. In this case, as the company shares reach the secondary market its price increases so IPO Is a chance to buy shares at a lower price.
- The company that has the potential their IPO gives high returns to its investors.
- As a trader one can get company listing gains when the company gets listed on the stock market because it may turn into a higher price than the allotment price.
What is an IPO in India?
IPO or initial public offering is the time when an existing or new company decides to go public and offers its stocks and shares to the public. Individuals can invest in a company in the beginning stage through their IPO release.
Is IPO good or bad?
The initial public offering cannot always be good for both the investor and the company.
When a company announces its initial public offering it gets attention and popularity.
However, as an investor one should not apply for the IPO share just because of its popularity.
If you get the complete information about the IPO company carefully and then invest the money in the IPO, then you can earn a profit, otherwise, you may have to suffer loss without the right information.
How IPO works?
IPO or an initial public offering of a company are shares priced through underwriting due to attentiveness.
Previously owned private share ownership of the company turns into public ownership once the company goes public.
In this case, the existing private shareholders’ shares of that company turn into the worth of the public trading price.
Individual investors can buy these shares through IPO and then can sell through secondary market trading.
What factors affect the cost of an IPO?
These are the main factors that affect the cost of an Initial public offering for a company –
- The financial performance and growth of that particular company in the past certain years.
- The number of stocks or shares that are decided to be sold in an IPO.
- The current cost of shares that are similar to the organization in that industry.
- Potential customer demand for the stock.
Interesting Facts about IPO
- IPOs are becoming very popular every day and nowadays common people are also investing in IPOs.
Some other famous full forms of IPO
IPO- Intellectual Property Office- in Governmental
IPO- Interest Paid On- in Business Accounting
IPO- Indian Postal Order- in Post office