Risk factor

Risk exists in every investment. Even your fixed deposit in a bank serving the public sector is not completely secure. So, if you plan to invest in an IPO, be ready to assume some risk. Remember that the company issuing an IPO is currently privately held. It might have room to develop, but that doesn’t mean it will succeed in the industry in which it competes in the future.

Risk appetite

What level of risk can you tolerate? Think again if your immediate response is extremely little. Consider your age, liabilities, financial status, and other issues. This will enable you to assess how much risk you can bear ?

One strategy is to adhere to the following rule of thumb: Your age is deducted from 100. The result is the proportion of your investments that should be allocated to equity. Keep your IPO investment within this range.

The purpose of raising money

A prospectus is made public by each investment bank for the IPO that is being offered. Carefully read the prospectus. The prospectus will outline the business’s financial goals. It’s good news if it’s for growth. Be careful whether it’s to pay off debt or buy stock from the owners. The risk of investing in such a corporation is possible. A corporation may experience future failure if it is unable to service its debt without soliciting public funding.

Brokers who oversell

Rarely do ordinary investors receive an IPO directly. If it is publicly accessible, it is most likely a sign that the institutional investors who were first approached by the investment bank declined the offer. Consider it a reflection of the company’s financial situation and future prospects.

Information at our access

Finding out much information on a business before it is listed is challenging. Therefore, it could be a little challenging to determine a company’s exact position. Despite information on the company’s assets, liabilities, overall financial situation, and growth prospects being provided in the IPO prospectus, you should check for studies and analyses by other sources in magazines, newspapers, journals, and online. Continue looking for information to learn things the prospectus would never tell you.

Lock-up period

Find out if there is a lock-up period. Existing shareholders might not be able to sell their shares before the required lock-up period is up. Therefore, it could be challenging for you to determine whether the stock these investors own is worth the same to them as the IPO price. It’s possible that these investors will sell their shares on the market after the lock-up period is up. The price could decline as a result of this. Delaying investment in the company till the lock-up period is over may therefore be a sensible move.

The Initial JOY

The IPO of Facebook is a fascinating example. Facebook made a big deal out of their IPO announcement in 2012. Right after the market opened, the price rose sharply. However, the initial excitement was short-lived. At the end of the first day, the stock was trading just slightly above the IPO price. For nine out of the following 13 days, the stock’s value decreased. It could be a good idea to wait until the market has settled before getting out your wallet.

Conclusions

Not only private enterprises benefit from IPOs. They could also aid in the expansion of your investment. In actuality, initial public offerings (IPOs) can be a fantastic method to earn both immediately and over the long term.
With companies like Amazon, General Motors, and DLF here at home, IPOs have created a tapestry of success stories in just the last few years.
A cautionary narrative is also present, though. Every IPO does not succeed. To avoid being sucked into the IPO excitement, use caution and do your research. Like driving a Lamborghini, the world of IPOs may be exhilarating. To manage the steering wheel and apply the brakes, however, you must be aware.

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