The share markets are volatile and risky. The huge fluctuations may be scary for you especially if you are new to stock market investing. It is natural that you would not like to lose money when prices fall. Thus, it becomes very important for an investor to diversify his portfolio and spread the risk on his investments efficiently.
One of the most attractive ways of diversifying investment portfolio is investing in an initial public offering (IPO). IPOs are when a company gets listed in a stock exchange and try to raise a capital by offering shares to investors who are willing to subscribe.
Why investing in IPOs is profitable (Advantages)?
1. IPOs provide an investor with an opportunity of grabbing shares of the company at a relatively low price. This is because the newly listed company offers its share at par values. In addition to this, newly listed companies also quote at high premiums after they listed in a stock exchange.
2. IPOs are convenient to invest in via a broker, net banking or using the ASBA facility.
3. An important advantage of investing in an IPO is that they are easy to analyze as there is so much information available to research and invest.
4. IPOs are almost risk-free, especially in a bull market phase.
5. They are an opportunity for investors to reap high benefits (quick short-term profits).
6. Right at the start is the best time to invest in a stock if an investor is aiming for a long-term investment.
Guidelines for investing in IPOs (Tips & Tricks)
New issues can be broadly divided into two groups: new issues of newly formed companies and new issues of existing companies.
New issues of existing companies can prove to be very good investments. They give the investor an opportunity for acquiring shares in profit-making companies at relatively low prices. On the other hand, all new issues of newly formed companies are not good investments.
You have to be careful in selecting a new company to invest in, as the chance of failure among these issues is quite high. Given below are some guidelines, which should help you select the right new issues for investment:
1. Avoid investing in a company having unknown and untried promoters.
2. Do not put your money in new companies which are not ready to start business operations.
3. Always try to invest in companies which have something unique or new to offer to the investors. This can be an innovative product or an idea.
4. Look at sectors in which the issuing company operates, along with the company itself. Investing in high growth sectors always helps.
5. Avoid investing in very small businesses.
6. Keep an eye out for IPOs of companies having foreign collaborators. These might end up being highly profitable investments.
7. Do not miss the big ticket IPOs (E.g. HDFC AMC IPO). Always try to invest in mega issues of well-known companies.
In all, IPOs are very attractive avenues of investment in Equity and give an investor the chance to make high-profit investments in a limited span of time.
Disclaimer: This article is written for information purpose only. As per my understanding and experience, I am trying to educate people through this website as per my knowledge. Don’t consider any of them as investment advice to buy or sell. Please consult your investment advisor before you invest in such high-risk investment options. You can contact me anytime to share more information or suggestion or any correction for this content.