Understanding IPO’s and How to Invest in Them

An IPO – Initial Public Offering is an event where a company sells its first stock to the public. IPO’s are basically are of two types – public and private. A privately held company has lesser number of share holders and they have maximum authority over the company.

Whereas a publicly held company has a lot of shareholders and the company is more liable, accountable to the shareholders. The great thing about a large public IPO is that, anybody can invest and purchase its shares. The advantage is – since it is a new IPO, the share price would be comparatively lower and easily affordable.

The measure of investing success is rather simple – How much money did you make off a particular investment? Control Your Cash said it best in their post on IPO’s for Beginners. The amount of risk involved with an IPO is inconceivable to say the least. They are not to be taken lightly and are made for only the adept investors.

Step 1 – First and foremost, get details about the companies that are about to go public. From the progress of the company, understand what company could get you returns and what company wouldn’t in the long-run.
Apparently, not every company that goes public manages to increase or even retain its share price after few months. So, you have to be sure of where you’re putting your money in; whether you’re going to benefit from it or not.

Step 2 – Once you know what company you would like to invest in, then find the S-1 registration statement from Securities and Exchange Commission.

Step 3 – Identify which brokerage companies are taking part in the IPO and reach out to them. Ask them, you want to purchase a particular number of shares of that company.

Step 4 – A lot of brokerage companies try to get only their top clients involved in the IPO. Therefore, you might want to offer them some good money for them to do the deal.

Step 5 – Once this step is confirmed, you can open an account with them. However, remember, you must have a DEMAT account, if you intend to purchase a company’s shares.

Step 6 – While applying, remember to read out the complete prospectus for the issue. The document basically contains the details of the company’s finances, growth, its track record and how the company plans to grow its business in the coming days.

Step 7 – The next step is to pick up the application form and fill it up. It is not difficult to fill-up the form because the instructions would be clearly mentioned on it. While filling up the form, don’t forget to mention about the least number of shares you intend to purchase.

The investment brokers usually help you in the form filling process.

Step 8 – That’s it! Once you fill the form, you hand it over to the brokers and they will take care of rest of the things.

A Word of Advice

There are plenty of companies that try to go public, but the sad part is – not all these companies make it really big after they launch. So, the company you select must have the following:

• Great plan for the future and an even greater track record of executing its plans successfully.

• The bigger the IPO, the better. Avoid investing in small IPOs because a lot of times, they do not manage to sustain once they go public.

• Learn about the vision of the company and more importantly, its leaders, so that you can be sure of where it will head in the future.

To conclude, investing in new IPO can be a little trickier than investing in existing public companies because a lot of times, you don’t know much about them. But the moment, you know a particular IPO can make you money, feel free to take a small risk, follow the above steps and purchase its shares. Simple!