The Dos and Don’ts of investing in IPOs

Over the past few months, India’s capital markets have seen a significant increase in activity, and experts predict this trend. In contrast to direct investment, many retail investors go to initial public offerings (IPOs) for immediate gains when the company goes public.

IPOs are discouraged by financial advisors since the investment pie for regular investors is typically relatively tiny. As a retail investor, you can only invest a relatively small amount of money in an IPO. Oversubscription means you won’t obtain an allotment or a little allotment, which may not be worth your time and effort if the firm is good.

As regular people, we’ll go over the dos and don’ts of investing in an IPO

Dos of Investing in IPO Shares

Become familiar with your thoughts and feelings:

To be successful in the stock market, you must communicate with yourself and understand the true motivations behind any potential investments. This new investment should be a no-brainer if you have done your homework on its growth trajectory, are knowledgeable about its industry, or can deduce its future growth potential and your considerable profits over time.

Become a Depository Participant:

A valid and confirmed Demat Account is required before an investor can apply for an initial public offering (IPO). You can’t buy or own shares if you don’t have a Demat account. The process is very straightforward when it comes to opening a Depository Participant (DPP) account (DP). In India, you can use any DP registered with NSDL or CSDL to open a bank account. It’s possible to start a Demat account with no shares and add them later.

Register for an Online Trading Account with a Trading Platform:

If you want to trade stocks online, you’ll need an account with a licensed stockbroker who offers the service. You save time and effort by using the Internet to trade. There is, however, one thing to keep in mind: not all cheap brokers allow you to apply for an IPO. In other words, if you want to buy an upcoming IPO, make sure your broker has the capability. As long as you have a bank account linked to your trading account, you’ll be able to move money between the two.

A thorough investigation of the company’s history should be conducted:

If you plan to invest in a company’s IPO, conduct your due diligence. Check out the company’s history, the IPO’s underwriters, and any news or events that have been publicized in the press or on reputable financial websites before making a decision. The initial public offering (IPO) prospectus should also be carefully examined for any errors or omissions. If at all feasible, learn how the IPO price is calculated.

Make sure you’re aware of the lock-in period:

Before investing in an initial public offering (IPO), you’ll need to agree to terms and conditions that govern the transaction. A Lock-in period is one of the most commonly used terms. Those who got new upcoming IPO shares are prohibited from selling them on the stock market within this period. Before investing, examine the lock-in duration.

Because IPO Performance and Market Trends are Linked:

New investors rarely consider the market trend before participating in an IPO, although the two are inextricably linked. Stocks from various industries are involved in the market’s current direction. Before investing in an initial public offering (IPO), you should thoroughly analyze the sector in which the firm operates. You can use the bullish market to your advantage by focusing on industries in an excellent fundamental position.

Don’ts of Purchasing Initial Public Offering (IPO) Shares:

You don’t want to swallow more than you can chew:

In other words, this is one of the most fundamental rules of the stock market investment strategy. An upcoming IPO stock investment decision is dangerous because the stock market is so volatile. Consider your financial risk tolerance and the most significant loss you are willing to endure before investing. Don’t get carried away with the enthusiasm of buying an IPO and cross the line into over-excitement

Don’t Take Out a Loan to Make an Investment:

Do not take out a loan to participate in an initial public offering (IPO). Investing in an IPO has no guarantee of a return. Any tragedy could reduce the quantity of money you invest to a negligible level. Not only that but paying interest on borrowed funds would add insult to injury. Alternatively, if you borrow money from family members, your connection with them could be damaged. Therefore, it is essential to limit your investments to 25 percent of your unutilized funds and only invest the available money.

Having a lot of backers doesn’t guarantee a lot of success:

Don’t get swayed by the prominent names on the list of investment banks or large stockbrokers endorsing the new upcoming IPO when making investment decisions. You never know what’s going through their minds when they back a cause. Before investing in an IPO, you should disregard the company’s prospectus and focus solely on its financial report to determine its growth potential.

Don’t Be Fooled by the Hype:

Keep in mind that both the firm issuing the IPO and its investment banks have invested significant money in the IPO process. They’ll be taking full advantage of the opportunity to advertise it like a diamond. Often, this involves building buzz on social media, or you may receive an SMS from an unidentified source claiming that the share’s price is about to rise. You should conduct your study before making a decision, and only when you are specific about the company’s growth potential should you do so.

Conclusion

If you invest in an IPO, the company has no obligation to refund your money. When you make a lot of money, you may want to credit your good fortune or your ability to make intelligent decisions.