The full form of IPO is an initial public offering. We also call it an ISSUE in stock market terminologies. The limited companies float these issues so that they can list them in the share market. Once the companies are listed in the share markets the general people will be able to invest in those companies shares.
What is an Initial Public Offering or IPO?
When a company needs extra capital for either working capital requirements OR managing/reducing debts they float an issue. A company can float an initial public offering only when they have a need for capital. Getting listed in the stock markets and raising public money in the form of an initial issue is time to time better for a company than taking a loan from a bank or financial institution because there is no liability of the company to pay interest.
Before filing an IPO the company produces all kinds of information to SEBI. SEBI investigate whether the information of the company willing to list itself in the share market is correct or not. Once the company floats an issue the interested investors apply for it. Before applying the investor must know how to apply for an IPO.
How Can an Investor Profit from an IPO?
- From the listing gains (listing gain is the difference between the listing price of an issue minus the price paid for while applying for it). The investor makes a profit if the initial public offering opens higher on the listing day.
- If the investor decides not to sell his holding on listing he can make a profit selling at a later date and make a profit if the stock’s price increases over time. We call this medium or long-term gains.
- The investor also can earn dividend income if the company declares dividends for its investors.
Final Thoughts on Initial Public Offering
The initial public offering is a critical moment in the lifecycle of any company. It also requires careful planning for success. By following best practices and setting realistic expectations, companies can enjoy the benefits that an IPO offers to innovative growth strategies. A successful IPO is possible with thorough research and analysis of market conditions, investor relations efforts, long-term goals, and effective marketing strategy development side by side with proper execution of legal compliance issues required prior to the offer release. With help from experienced partners along the way each individual company will have an enjoyable experience during their Initial Public Offering journey.