IPO stands for Initial Public Offering and basically is a process through which companies raise funds for their operations from the market. Every business requires funds for various reasons. When it comes to diversification of funds for new businesses, funds are needed and a business can only thrive if it diversifies.
If you are an investor and are starting out to understand how IPOs are useful and how they can be applied for, this article will prove to be informative for you. However, as a beginner, what is imperative is to know how to buy IPOs online.
Before buying IPOs online, you need to ensure if you are eligible for the same.
Who is considered eligible for IPOs?
Any person who is competent enough to enter a legal contract is considered to be eligible to apply for an IPO of a company. However, it goes without saying that the applicant must have a PAN card issued by the Income tax department and should also have a valid Demat account.
Having a trading account won’t be extremely essential in the case of IPOs, and hence just a demat account alone would ideally suffice. If, however, you look to sell shares on listing, then in that case, a trading account will be needed. This is why most brokers out there will advise you to get a trading account opened when you apply for an IPO for the first time.
One important thing to remember here is that when you apply for an IPO, it essentially is not an offer by itself but it is an invitation to offer. It is only when the IPO issuer offers shares, it basically amounts to an offer.
How to apply for an offer?
Now, coming to the most important part, how can one apply for IPO online and the IPO application process.
IPOs basically come in two basic varieties: Fixed price IPOs and Book Built IPOs.
Fixed Price IPO: this is the variety wherein the company fixed the price of the IPO in advance as the sum of the par value and the premium. You, as an applicant, can only apply for the IPO at the said(fixed) price.
Book built IPO: is when the company will only provide an indicative price range for the IPO and the final price will be discovered using the Book building process.
When it comes to purchasing an IPO, you must work through a registered stockbroker. If the company you are eyeing is not public, you can go to the website and call in the investor relations representative. You can inquire about shares that are for sale in a private offering and what are the prices.
The representative might then forward you to the broker dealer to complete the transaction. They will finally issue you stock certificates.
IPOs come in with a lot of nuances in the process and treading carefully will prove to be handy for you in the longer run. While the process seems to be quite simple, you will have a lot to find out from the broker dealers through conversation.