Top Reasons Why Investors Should Invest In IPO Shares
An initial public offering or IPO is the very first time any company makes its stock available for public purchase. Under an IPO, a private company issues its new stock to raise capital from public investors. An IPO is a great medium to offer companies a large influx, which can be used to pay off loans, fund new projects, or offer a return or investment to the shareholders. Additionally, IPO investments give an opportunity to the investors to purchase stocks in a growing, young company and potentially benefit from its success.
Why Do Companies Offer IPO?
The company generates revenue from the capital markets by issuing an IPO. The capital raised through IPO must be utilised for multiple business requirements like product diversification, capacity expansion, merger and acquisition activity, and entering into a new geography. The details of the usage of the funds must be mentioned by the company in the issue prospectus.
The benefit for companies to raise money through an IPO over other traditional channels is public visibility and an opportunity to enhance market capitalisation. Also, the layman explores the opportunity to purchase shares and own a minor part in company ownership. However, companies willing to get listed on Stock exchanges such as NSE and BSE in India must issue shares to the public through an IPO process for subscription.
Why Should Investors Buy IPO Shares?
Investors can purchase shares in an IPO issue of the issuing company by making an investment and becoming a shareholder. As per their shareholding, shareholders are given bonuses, shares, or dividends, according to the earnings of the company. Historically, as compared to other asset classes, equity has proved to generate better returns.
Thus, it is beneficial for investors trading India to include a portion of equity in their portfolio. Even though equity is considered a risky investment because the share prices encounter frequent fluctuations on the basis of both non-economic and economic events, without any specific reasons.
However, in the long run, share market investing helps investors with wealth creation by purchasing valuable stocks of renowned companies with a good financial performance and business model.
An IPO is a great opportunity for investors to pick good-performing stocks and support the shares of future industrial leaders at a competitive price, which offer great earnings through stock appreciation.
Because of the reasonable prices, anyone can purchase multiple shares of the issuing company at an affordable cost. However, once the company has established itself, it may be costly to buy multiple stocks of that company, as market prices would eventually increase.
Hence, key reasons for investors to invest in IPOs include:
- An IPO comes with the potential to create better returns, especially in growing industries such as healthcare and technology
- An IPO comes with liquidity, letting investors sell off their shares easily and quickly whenever needed.
- An IPO offers the potential of long-term growth, especially when the company is well-known in the industry
Conclusion:
Investing in an IPO and future trading are great ways to benefit from the rising economy of the country, along with the capability of new companies to enter the market. These investment tools provide an opportunity to invest in companies at an early stage and see great returns in the future.