How Should You Invest In An IPO

How Should You Invest In An IPO

Many companies look to jump into the stock market and try to make their name there. Some stay and some die out leaving no trace of their existence. Investors have experienced all. Some face the gains or the huge losses on the very first day. Orthey experience a long-term gain or a huge loss. This means that there is no sure shot way in which you can make money in the stock market. This is because the stock market is highly volatile.

It is indeed difficult to spot and buy a good IPO. There are certain characteristics that you should look for in an IPO. If you follow these points then chances are that you would be able to pick up a good IPO issue and make money from it.

How should you select which IPO to subscribe to?

Most people do detailed research about the company that is issuing the IPO and read every detail that is there in the prospectus. They look at the third party websites and details sent by the investment banks and try to figure out if the IPO is right for them. Is it safe to select the IPO like this? No! If you are doing this then stop right away.

You cannot do a research on the IPO issue yourself because you do not have the information about the organization in the first place. The third-party websites could be giving you a biased view on the stock and the investment banks would have their own stake in highlighting why the IPO issue is a good one to subscribe to.

The institution, however, has a fairly good idea about the IPO issue because they get access to more details about the company. This is much more information than what the retail investors can get. Thus getting the institutional data comes very handy in deciding whether or not to subscribe to a particular issue.

How will the money be used?

The prospectus will state how the company is planning to use the huge capital that it is raising through an IPO. They could be entering into another sector or coming up with some new products would be using the money to clear off their debts. Only if the prospects look good should you invest in this company?

Cut off price

If you are a retail investor and want to increase the chances of getting the IPO shares allotted to you then make sure that you do the bidding at the cut off price. This way there are high chances that your application will be considered irrespective of what may be the allotment price that is finally decided on.

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