Is IPO Safe or Not?

Investors have always been fond of IPOs, and since the beginning of this year, a lot of companies have raised good funds by introducing their IPOs. However, since a lot of investors are involved in IPOs, the question remains, is IPO safe or not?

When we talk about safety, it is indeed right to say that it is not just limited to IPOs but life in general as well. A person who is willing to go skydiving also faces the dilemma of “to jump or not to jump.”

On one hand, it can be really thrilling and on the other hand, can be an absolutely unpleasant experience.

To understand how reliable and safe IPOs are it is important to know what is IPO.

IPOs allows a lot of retail traders to buy the shares of a particular company at a comparatively better price in the primary market.

Owing to the fact that a lot of traders are interested in investing in IPOs, it is a safe option.

But before you start investing in an IPO, it is better to keep a few points in your mind so that you don’t face any risky situations. So let us now look in detail, is IPO safe?

Is Buying IPO Safe?

Starting with IPO full form i.e. Initial Public Offerings brings in an opportunity for the companies to raise funds to grow and at the same time is the gateway for investors to earn high profit by buying at the low price and selling it at a higher price on a listing day or later depending upon their goals and analysis.

A lot of investors, therefore, apply for IPO just for the listing gains. Although this might look great and a lot of IPOs are able to produce that gain as well. It is always better that you don’t enter this investment with only one sole motive.

There are certain things that you should check before investing in an IPO. Let us quickly have a look at these points.

• Always Read the DRHP

DRHP or Draft Red Herring Prospectus is a company’s document to SEBI before bringing in the IPO. Not only the company details, but the DRHP also provides other information about the IPO.

It contains all the information like the company’s revenue, profit, loss, etc. Apart from this, it also has the opening date, closing date, price band, lot size, objectives of the company behind every company, the promoters of the company, and much more.

Therefore, it is vital for every investor to read the DRHP so that they can choose the IPO that has the potential for higher returns according to you.

• Pay attention to the company’s objective.

Different companies bring up their IPOs in the market for fulfilling varied objectives. For example, some companies bring in the IPO of their company with the sole motive of clearing the past debt. But, at the same time, some of the companies put some amount of this money in expanding the business or for the operational costs.

If a company is just clearing out the debts and not focussing on the expansion of business, then this can be a riskier deal for the investor.

• Company Understanding

When you buy the shares of a company, you become the part-owner of the company. Therefore, before applying for an IPO also, you should be aware of the company’s background and the business objectives and mindsets.

When you choose the right company, the potential of you generating higher profits also increases.

• Financial Valuations

Have a look at the financial statements of the company. This will help you figure out where the company is using its money and the profit or loss status of the company.

Also, make sure that you compare the company to its peers in the sector. This also gives the investors an idea of how the company is going to perform in the long run.

• Keep Clear Goals

Whenever you are entering the stock market, it is essential that you know your goals and investing purposes very clearly.

Some people enter the IPO investment for the listing gains. Well, it is not a negative thing, but it is also essential to check the fundamentals because if you are in for the long term, you need that point clear.

You should also pay close attention to your risk appetite. Therefore, it is essential to align all the financial goals aligned to your levels of risk-taking.

Once you keep all these points in mind, it becomes to invest in IPOs a little more safe and ensure that you generate better returns.

Also, you can check for the premium or Grey market premium value that gives you an idea of the demand of the IPO among investors.

There are various advantages of applying for an IPO.

• You get to become a part of the company in the primary market itself.
• There is price transparency in the IPO.
• You get to plan your long-term goals and then invest accordingly.
• There is a chance to make good profits with the listing gains.
  
  

Advantages of IPO

Now that we know that you can safely apply for IPO keeping some tips in mind. Let us now look at some of the advantages of IPO.

• When you apply for an IPO online or in some other way, you get early access to the shares of a company. If the company has good growth potential, your capital will see good growth as well.
• If you are looking for long-term investments IPO can give you potential gains.
• You can enjoy the listing gains. Whenever you get the allotment of an IPO, there are high chances that the IPO will list at a higher price on an opening day. So as soon as the company gets listed, it gives good profit to the investor.
• When a company is coming up with an IPO, it gives all the financial details and objectives in its DRHP. So, there is better transparency and you can choose a company with similar objectives as yours.
• The company also has an advantage as it gains better visibility.
  
  

Disadvantages of IPO

Just like there are two sides to a coin, IPO also has some drawbacks. The disadvantages of IPO that you should keep in your mind before applying for an IPO are as follows.

• You need to conduct detailed research before applying for an IPO. It can be a time-consuming process.
• There are chances of you picking the wrong company that can take your chances of listing gains.
• The one disadvantage for the company is that it loses its control and also privacy as everything has to be disclosed to the public.

These are the various advantages and disadvantages of an IPO. Now let us have a look at how you can apply for an IPO safely.

How to Apply for IPO?

Now that we know that applying for IPO is safe if you keep some points in your mind and do your research correctly. Now let us have a look at how you can apply for an IPO.

Firstly, you need to have a Demat account before applying for an IPO. A lot of investors usually ask this question, can I apply for an IPO without a Demat account? But the answer to this is that it is not possible and also not legal.

You can apply for IPO either online or offline. Your application in both cases is supported by ASBA (Application Supported by Blocked Amount). This means that on successful submission of your application, the desired amount will be blocked in your account till the time the allotment process of the shares is completed.

Let us now have a look at how you can apply for IPO online.

• Log in to your net banking portal or Jiffy using your login ID and password.
• Click on the ‘IPO segment.’
• Now you will see a list of open IPOs.
• After analyzing, select the IPO that you want to apply for.
• You will now see an application window. Enter the details like quantity and price here.
• Enter the UPI ID.
• After proceeding, you will receive a mandate on the registered UPI ID. On approving it, your desired amount will get blocked in your account.

The amount is just blocked and not available to use till the time the shares are allotted. If the IPO is allotted to you, it is only then that the amount will be debited from your account. If the IPO is not allotted to you, the amount will get unblocked in your account.

Is IPO Safe or Not – Final Words

Investing your money in IPOs is absolutely safe keeping in mind that you pay close attention to the minute details. Always make sure that you read the DRHP as it has all the details of the company. Your objectives should align with what the company is planning to do in the future.

Other than this, you can look into the Grey Market Premium detail of the IPO to get an idea of the listing gains.

If you are also looking to make the best of the listing gains, you can apply for an IPO. You just need a Demat account. So open your Demat account today and start investing in the IPOs.