By: Hem - 07-Apr-2022

5 Essential Guidelines to IPO for Beginners

For beginners, investing in the stock market is a daunting task. Before swimming into the ocean of the stock market, where the value fluctuates, you must first research, evaluate all of the stocks, and comprehend the various methods of a firm. As a newbie, it is critical to master all investment ideas and procedures. Although an IPO is an excellent option to invest money quickly, keep in mind that not all IPOs perform well. You can make informed judgments by conducting enough research and analysis on a specific organisation. If you want to invest in an IPO, you must be well-versed in the ins and outs of a firm. Discover which market sector the firm operates in. Examine the company’s current circumstances as well as its prospects. 

Nowadays, many professionals use online trading platforms to invest in IPOs. Know the best IPO to apply with online trading platforms to maximise your profits. Many companies have made quite impressive stocks in the NSE and BSE. You also choose the industry you want to invest in before putting your money in a stock. Here are some essential guidelines for IPO for beginners. If you follow these, you will emerge victorious in the trading world. 

Things to consider before investing in IPO

Before you invest in an IPO, consider these three essential things. 

Learn about the company

Examine every aspect of a firm in which you want to invest. Conduct thorough research, the aims of the IPO, the prospectus and consider how the firm will use its proceeds.

Analyse the current market trends

IPOs are inextricably related to market developments. When the current market trend is upward, IPOs become more powerful. Investing in IPOs when the trend is upward is thus an excellent approach to acquiring wealth. 

Examine the volume of the application

Oversubscriptions are unavoidable because IPOs are recognised to be a solid investment option. As a result, more applications equals fewer shares for you. You must keep an eye on the number of applications received by the IPO.

Process of issuing an IPO

Here are the steps by which you can issue an IPO.

Select an investment bank

The first stage in issuing an IPO investment to the general public is to choose an investment bank to act as an underwriter. The underwriter is a financial institution that assists a firm in establishing numerous information such as what amount of money the firm expects to raise and what the first share price be. In the case of a large IPO, many investment banks may be involved, acting as facilitators in the IPO investing process.

Curating the Red Herring Prospectus

The next step for the IPO investment strategy is to curate the Red Herring Prospectus. The name “red herring” comes from the prospectus’s conspicuous disclaimer in red on the cover page. A red herring prospectus is availed to entice future institutional investors to participate in a business. The prospectus contains several sections such as financial records, future goals for the firm, market risks, estimated share price range, etc. 

SEBI approval 

Following the Red Herring Prospectus, the next step is SEBI approval. The prospectus for Red Herring is then filed to the Securities and Exchange Board of India (SEBI). SEBI next reviews the statement’s data and assigns a date for the business to disclose their IPO investment to the public if the information is confirmed to be valid.

Approval from the stock exchange

Allowing securities to trade on a recognised stock exchange is known as share listing. However, the exchange must first authorise the firm. For example, the National Stock Exchange (NSE) has a listing department that approves initial public offerings (IPOs).

Subscription of shares

Once all these processes are completed, the business makes the shares accessible to investors via IPO investment on the dates mentioned in the prospectus. Investors who want to apply for an IPO investment must submit an IPO application form.

Advantages of investing in an IPO

Here are the appropriate pointers

  • The business may be able to obtain money at a lower cost.
  • The listed stock aids in the recruitment of superior management and staff.
  • Increase in the company’s status and public image due to increased stock exchange exposure.
  • Creating numerous funding options for the organisation, such as cheaper bank loans, equity, convertible debt, etc.
  • The company’s stock base is constantly growing and diversifying.

Disadvantages of investing in IPO

Like any other investment, investing in IPOs also comes with some disadvantages. These are:

  • Disclosement of confidential financial and company information that rivals, suppliers, and customers may find valuable.
  • The company’s management requires a significant amount of time, effort, and attention.
  • A large amount of money will be spent on marketing and legal fees, among others.

Important terms used in IPO investment

There are some important terms that you must learn while investing in IPOs. 

  • Offer Document– This document contains all of the essential information about the firm, such as the promoters, the financial situation, the aims of the initial public offering, etc.
  • Bid lot– The minimum amount an investor must bid for is only relevant in bid lot multiples.
  • Issue size– The number of shares made available for general bidding in an issue.
  • Cut-off price– The cut-off price is when the shares will be sold to investors. 

So, if you are thinking long-term, investing in IPOs is an excellent option. However, with the unpredictability in the stock market world, you need to be very sure before an IPO investment. You can conduct extensive research about the best IPO to apply for or can check the company’s stock status on an online trading platform like Hem Securities. Recognised as a leading Financial Service Provider, Hem Securities offers excellent IPO services to beginners and professional traders. The online trading platform allows users to fill in paperless applications for e-IPO backed by in-depth IPO analysis, multiple modes to apply, complete IPO review and more. Alongside IPO services, Hem Securities is known to offer real-time help with investment banking, Algo trading and mutual funds.


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