The full form of IPO is initial public offering. Its also called an ISSUE in stock market terminologies. The limited companies float these issues so that they can be listed 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 IPO?
When a company needs extra capital for either working capital requirements OR managing / reducing debts they float an issue. A company can float initial public offering only when they have a need for capital. Getting listed in the stock markets and raise public money in the form of an initial issue is time to time better for a company than taking a loan from bank or financial institution because there is no liability of the company to pay interests.
Before filing an IPO the company produces its all kind of information to SEBI. SEBI then investigates whether the information provided by the company willing to get listed 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). If the initial public offering is listed higher the investor makes profit.
- 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. This is called medium or long term gains.
- The investor also can earn dividend income if the company declares dividend for its investors.