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What is IPO? Is IPO good for investment, Know full details

By Arjit - February 12, 2024 01:42 PM
IPO i.e. Initial Public Offering is a unique way of converting a private company into a public company.

What is IPO (Initial Public Offering)?

The full form of IPO is – Initial Public Offering.

As we can understand from its name itself, IPO i.e. Initial Public Offering is a unique way of converting a private company into a public company.

IPO is a process through which a private company lists its name in NSE (National Stock Exchange) and BSE (BSE- Bombay Stock Exchange).

If we understand in simple language, when a private company makes its stock available to the public for purchase for the first time, then we can understand it as Initial Public Offering. If you want to invest in IPO and want to understand it in detail then read this article till the end.

Is it good to invest in IPO or not

When a private company makes its stock available to the public for the first time, its price is lower than the normal price. That means private companies offer IPO to the public at a price lower than the listing price.

If we understand this in simple language, then suppose that the company has provided you a stock at a price of ₹ 10 per stock. Then the listing price is going to be more than ₹10 per stock. The company already tells you this.

For this reason, when the stock list comes in the share market, then during the listing itself, most of the people start selling their stocks which they had received through IPO because the general public gets profit during the listing itself.

If you want to know whether you should invest in IPO or not? So only you can decide this. However, before buying the IPO of any company, it is very important for you to do investment related research about that company. You need to have information about the company record.

Is it right to invest at the time of IPO?

Now coming again to your question whether we should invest in IPO or not? See, it is very important for every person to be an investor and if you want to invest then there are many investment options available for you. However, if you want to invest in the stock market then IPO can be a better opportunity for you.

If you have good knowledge about the company and if you are a good financial researcher and most importantly if you are ready to take stock risk then the market is completely open for you.

Should I invest in IPO or not? This question can be understood from an idea of Warren Buffett. Warren Buffett says, “You make mistakes when you do not have knowledge”, that is, you can understand that if you do not have knowledge about the company then you can definitely suffer loss, but if you have knowledge then you will suffer loss. It is not there.

Why are IPOs issued? What does a company need to launch an IPO?

Any limited company can become a public company by issuing stock by the company. Apart from this, shares can also be issued to the public for raising capital for business. That is, in some cases shares are issued because the company needs capital.

The company can use this capital to expand its business and increase its capacity, including manufacturing capacity. Through this capital the company can repay its old loans and give benefits to its early investors.

The company already decides that it can issue an IPO in the future so that it can attract initial investors. When company stocks go public, early investors have the option to sell their stocks and earn profits.

What things should be kept in mind before buying IPO?

Before buying an IPO, it is important for you to have some information because investing in an IPO without knowledge can be risky for you. Below we have told you about some important things to keep in mind before buying an IPO –

  • Before buying an IPO, you need to know about the past records of the company and some basic information about the company.
  • How old is the company? And get complete information about what business the company is doing. How successful can the company doing business be in the future? Get information about this.
  • Be sure to find out how much total assets the company has? And how much business is the company currently doing?
  • The most important thing is that you must get information about how much Net Profit the company is earning after paying all its expenses and taxes.
  • Be sure to keep in mind how much debt the company currently has. And on what things is the company spending its money more?
  • Before buying an IPO, you must pay attention to who is the director of the company? Is he a successful businessman? How much experience does the company director have? Please pay attention to this also.
  • Is IPO a short term investment or long term investment?

    Is IPO a short term investment or a long term investment? It completely depends on the public. IPO can be used for both short term and long term purposes.

    You must have noticed that the offering price of an IPO is much lower than its listing price. That means the investor gets his profit immediately after listing.

    After listing, a stock can be 2 to 4 times more than its IPO price and there are some stocks which may take more than a year to reach their listing price, such as We gave you the example of Paytm stock.

    If you want to make long term investment then you should do proper research about the company. If you want to make short term investment then you can sell your stocks on the day of listing of IPO or during a week.

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