How to Invest in an IPO: A Step-by-Step Guide
IPOs present an opportunity for investors, whether beginning or experienced, to join at the initial stage of a potentially successful enterprise. An IPO is the very first time a private company decides to offer its shares to the public, and it can be quite profitable if invested in correctly.
What is an IPO?
In simple terms, an IPO is when a private company lists its shares on the stock exchange for the first time to let the public buy its stock. As far as investors are concerned, IPOs are deemed attractive because they allow investing in the company at its rather nascent stage, which may bring high returns if the company grows. However, IPOs can also become pretty volatile; hence, it's essential to approach them with great caution and proper research.
Choose the Right Trading Platform
You want a trading platform through which you will have the access and privilege to apply for IPOs online. The best trading platform to invest in IPOs should include a user-friendly interface, real-time data, and efficient options – case in point, HDFC Sky.
Open a Demat Account
To invest in an IPO, you need to have a Demat account. A Demat account allows you to trade electronically. It is mandatory for trading purposes in the stock market. You can open a Demat account online through any online trading platform or IPO app. Commonly, you will be asked for a few documents to open the Demat account, which is as follows:
- Aadhar card
- PAN card
- Bank account details
- Recent passport-size photograph
Once you open Demat account, you can begin investing in IPOs and the stock market in general.
Research the IPO You Want to Invest In
Not all IPOs are created equal. Research the business model of the company, its financial history, the market potential, and its competitors. Understand the industry it belongs to and weigh the associated risks.
You could delve deep into the details by reading the company's prospectus, outlining its financials, business model, risks, and future plans. The more well-researched an IPO investment, the likelier it would yield good returns. Another instance entails IPO investment analysis given by a few IPO apps and websites regarding upcoming IPOs, which will make informed decisions much easier to complete.
Decide How Much You Want to Invest
Once you have selected an IPO, decide upon the amount of money you are willing to put into it. Most of the IPOs "lot out" their shares for which the minimum investment amount depends upon the price of a lot. The maximum is usually ₹2 lakhs as an individual retail investor.
You could also consider diversification of your portfolio since these investments might be a little volatile. You can balance your investment in IPOs, for instance, with a much more stable investment through an SIP investment app. Systematic Investment Plans operate on investing in mutual funds over a certain period, helping spread the risk.
Apply for the IPO
The Demat account and best trading platform are in place. You are all set now to apply for the IPO. The steps are as follows:
- Login to the HDFC Sky website or IPO app
- Find the IPO section and choose from the upcoming IPOs you want to invest in
- Enter the number of lots you want to apply for
- Choose your bid price from the price range on offer. Most investors like the "cut-off price" to maximise their share allotment chances.
- Finally, place your application. You would need to authorise the fund hold on your bank account through the ASBA process. Most online trading portals and IPO apps allow easy applications via ASBA and block your funds in your account till the share allotment is made.
Allotment
When the subscription period of an IPO closes, the next step is to wait for the allotment. This is considered the time when the shares are allotted to their owners. In the event of an IPO oversubscription - meaning the number of investors applying for shares exceeding the total availability – the allotment of shares is done through a lottery system. If you are allotted shares, the same shall be credited to your Demat account before the IPO listing date. If you don't get any shares, the blocked fund in your account will be released.
Decide Whether to Hold or Sell on Listing Day
The day of listing an IPO marks the beginning of its trading on the exchange. Quite a number of investors sell their shares on the very first day if it opens at a premium. Others hold onto the stock for longer, expecting it to increase further.
It is now up to you to hold or sell; this will have to depend on your investment goals and the stock's performance. If you are one of the investors who enjoy holding on for the long term, the returns may be very rewarding, especially if the company grows in the future.
Monitor Your Investment
If you continue holding the stock even after an IPO, keep an eye on its performance: go through its financials and news and trends in the industry. That could be easier using the best trading platform, IPO app, or even an SIP app that offers portfolio-tracking features.
Conclusion
Investment in IPOs can be lucrative if it is done properly. The ways through which one can get optimum value from an IPO opportunity include the selection of the best platform for trading, opening a Demat account, researching the company, and managing your investment actively. Note that there is risk while investing in an IPO, just like any other stock on the market. Balance your portfolio with other forms of investment, such as SIP, bonds, or fixed deposits.
Explore and invest in IPOs, other listed stocks, mutual funds, ETFs, etc with HDFC Sky.
