Before understanding the tips for salaried people to invest in IPOs, it is necessary to understand the concept of IPO first, what it is and why it is so popular among every type of investor.
What is an IPO?
IPO or Initial Public Offerings is a process of offering shares of a private company to the public in a new stock issuance that helps the company raise capital from public investors. After this, these stocks can be traded on the stock exchange. A private company becomes public by selling its shares to the public. It is one of the methods used by companies to raise capital funds from interested investors. It is a big step for a company as it gives the company a greater ability for growth and expansion.
There are different kinds of investors in an IPO like Qualified Institutional Buyers (QIB), Non-Institutional Investors (NIIs), and Retail Investors. A company can advertise to generate more and more interest from investors in its IPO. Retail Investors need to make a minimum payment to apply for its IPO. This minimum amount is the price of one lot of shares issued in the IPO.
Steps for Investing in IPOs
Unlike earlier days, investors are now more informed about the companies issuing IPO. Following are the steps that every salaried person should focus upon while choosing an IPO as they need to create wealth with their limited funds.
1. The Prospectus:
Any investor who is willing to invest in IPO should go through the prospectus (Draft Red Herring Prospectus) issued by the company. Even if you have gone through the company’s prospectus, you should look closely at the trends in the market and about the recent updates about that company.
2. Strong Brokers/Underwriters:
Underwriters with strong credibility for leading successful IPOs give a positive impact to the IPO issue being managed by it. One should also note the underwriter before applying for the IPO of a company.
3. Objective Research for Company's Performance:
Search online about the company's financial status and how they are going to use your invested funds. Look at their past press releases as well. You need to research industry health, growth prospects, and competitors also. In your research, you might find some advisors suggesting to invest while some suggesting to abstain. Do not fall for any hype – look for the reason behind the suggestion and make your judgment whether it fits your logic.
If you applied for an IPO for the first time and luckily, you got the allotment you should look for the long-term benefits through it.
4. Multiple applications for an IPO:
If you find that a particular IPO is a suitable investment opportunity for you, you can increase the chances to get an allotment of shares, by submitting multiple applications using different demat accounts in the name of different members of your family. You cannot submit multiple applications using different demat accounts in the name of the same investor.
You can open different demat & trading accounts with a simple online process with a Depository Participant, also registered as a stockbroker. You can visit the stockbroker’s website and follow the procedure of opening an account online. Some documents will be required to open the same which will be already mentioned on their site. Once you are done with the application submission, you need to wait for the verification.
The Bottom Line
The best way to get IPO stock for retail investors like salaried persons is to have a demat account with several brokerage firms in the name of different family members.
