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What is an IPO in the context of investing?

Date: 21 Sep 2016    Group: Finance and Investments    Category: Investments   

From time to time advertisements appear in the newspapers regarding the issue of IPOs by certain companies. What is an IPO in the context of investing? What are the key factors which should be kept in mind and precautions to be taken prior to investing in IPOs?
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Author: Mahesh    23 Sep 2016      Member Level: Gold     Points : 4  (Rs 4)    Voting Score: 0

IPOs are released the first time when the company enters into the market. So their public initial offer is listed as IPO. And they may attract more people into the investment. Before investing into the IPO make sure you pay attention to one of the following.

1. Read the risk document carefully. Know where they are from and how they are projecting ahead.
2. Check when the lock up period is ending. And when the safe investment period begins.
3. Find out the strong brokers that are backing the company.
4. Be skeptical on the company policies and the board members. Think before you invest into the company. If you are unsure, don't invest into IPO.
5. Do the objective research and find out where the company stands for next year or so.

These are the tips to keep in mind while investing into the IPO.

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Author: Venkiteswaran.    23 Sep 2016      Member Level: Diamond     Points : 3  (Rs 3)    Voting Score: 0

IPO means Initial Public Offer. This is when a company goes public by offering its shares to the public for the first time .

An IPO , in the case of a well established and profit making company is usually seen as a welcome event by investors.

What are the key factors and precautions which should be kept in mind (in the case of an IPO?)
Investors have to check for and know about who are the key people and promoters of the company. Does it belong to a group? If so how the group is doing in the market? A company with well experienced directors and promoters and with professional management is worth investing, if other parameters are also okay.

What is the authorized capital, what is the present issue capital?
The other important thing is how much will the promoters keep with them. If the promoters are diluting their stake to the maximum extent and keeping only minimum shares to keep their hold, then one should be careful, as the original people are trying to get out of the company for some reason.
Who has underwritten the issue? Who are bankers to the issue? Is it a reputed firm or a new entity? If they are all reputed and established entities, then one can invest in the IPO with more confidence.

If the company is new, yet to show results, if the bankers and underwriters are all small and new, then it is better to take less risk only.

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