Owing to high stock market activity and increased liquidity, the Indian market is flooded with IPOs. Releasing IPOs is a way for companies to generate funds and facilitate the exit of existing Venture Capitalists and Promoters. Investing in an upcoming IPO is also
lucrative for all kinds of investors, whether you are a beginner or an expert.
With the MO investor app, it has become easy to open Demat accounts and invest in upcoming IPOs. However, investing in all IPOs blindly is not a smart move. In most cases, investing in an upcoming IPO will positively affect your wealth, but they come with their own set of risks and doing your due diligence is necessary.
Before we move on to the points you should keep in mind before investing in IPOs, let’s talk about why IPOs are profitable for investors.
Why invest in upcoming IPOs?
- Get early access to a company’s profits
Investing in an IPO of a company with a high-growth potential means you get in on the action early. As the company’s wealth grows, your wealth will also increase. This is especially true if you correctly predict whether the IPO will do well.
- Complete transparency
When an IPO is released, the public is given all the details that big investors are provided, irrespective of the investment amount.
- Option to sell shares later at a higher price
When you invest in an IPO, chances are that you are getting the shares for the
lowest possible price. As the company grows in the future and the demand for its shares increases, you will have the ability to sell the shares for a much higher price than the initial purchase.
Information to look for before investing in upcoming IPOs
As discussed above, doing your research before investing in an IPO is a smart choice. Let’s look at some of the points you should keep in mind-
- Read the prospectus
The prospectus describes the risks associated with the IPO and the company’s intention to raise funds. Therefore, reading the prospectus is
- How will the funds be utilized?
If the company is using the funds to repay their debt, investing in the IPO may not be a lucrative option because it won’t lead to the company’s growth. Therefore, ensuring that at least part of the funds raised will be put back into the business for expansion and other operational purposes is essential.
- Looking into the management
The management and promoter’s capabilities and expertise are huge determinants of future profitability and growth. Investing in companies run by incompetent management is not the best use of your money.
- Look into the financials of the company
The financial health of the company is an essential indicator of its future growth potential of the company. Therefore, looking into the company’s revenue, profits, assets and liabilities before investing are vital. The company’s financial statements can also help you gauge future investment returns and if KPIs are being met.
- Strategy and potential of the company
A concrete strategy should back the IPO release of the company to ensure positive future results. The company’s potential to capture market share can also be a driving factor behind your investment decision.
Investing in IPOs is a sound financial move, although this decision should be accompanied by its fair share of due diligence. You can find all the relevant information about upcoming IPOs and companies on the MO investor app, ensuring that you make the best investment decisions.