Want to invest in an IPO floated by an Indian company? Want to know your eligibility? With the mercurial rise of the Indian stock market, many Indian companies are tempted to go public by launching their IPOs. But what is an IPO and who can invest in it? Read on to find out.
What is an IPO?
When an unlisted company wants to go public in order to raise funds, either for capital expansion or to repay debts, or for the promoters to dilute their stake in their company, the company brings an Initial Public Offer (IPO) in the market. It is a way by which the public can own a piece of the company that was previously inaccessible to them.
Why should I invest in an IPO?
It is a smart move to invest directly in an IPO as there are very small chances of the share prices being rigged by smart operators as is the case when buying directly from the secondary market. There is no need to pay any brokerage, transaction fees, or tax of any kind like service tax, STT, stamp duty etc. when buying shares in an IPO. You are also saved from the nightmare of stock market fluctuations since the purchase price is fixed by the company.
I want to invest in an IPO. But how do I know I am eligible?
Once you have decided to invest in an IPO, the first thing to do is to open a valid Demat account, since SEBI has made it mandatory that buying and selling shares should compulsorily be in Demat form. Next you should fall in either one of the category of investors:
Retail investors
This category includes individuals, Indians as well as NRIs besides HUFs. The total value of their investment should not exceed US$ 2,500. About 35% of the issue is reserved for this category.
Non institutional investors
This category consists of resident Indians, HUFs, companies, NRIs, corporate entities, trusts, and societies whose value of investment exceeds US$ 2,500. Nearly 15% of the issue is reserved for them.
Qualified institutional investors
This category covers banks, insurance companies, mutual funds, foreign institutional investors etc. A maximum of 50% of issue is reserved for this category, with 5% exclusively for mutual funds.
Have you ever invested in an IPO? Were you allotted any shares? We would like to know how it went for you. Post your comments right here!
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