What Is An IPO Investment ?
An IPO (Initial Public Offering) investment refers to the process of investing in shares of a company when it offers to the public for the first time. When a company decides to raise capital for expansion or to meet other financial obligations it launches an IPO.
Key Features Of IPO
* The main objective of lunching IPO is to raise fund
* After completion of IPO process company's shares can be traded publicly
* Shares are sold in primary market, it means company sells its shares direct to the investors
* Shae price is fixed before the offering
Understanding The Real Pros And Cons Of IPO Investment
Pros
The main advantages or benefits of IPO investment can be pointed out as follows:
1. High Returns Potential
One of the notable advantages of IPO investing is potential for high returns. Early investors can make may be benefited from capital appreciation if company performs well in the initial stage.
2, Liquidity
Shares can be bought or sold easily and quickly on the stock market that offers liquidity to investors.
3. Transparency
Companies should follow government rules and regulatory guidelines and they should disclose financial reports. Si, IPO investments ensure transparency.
4. Access To Growth And Innovation
Companies can raise huge capital through IPO, that helps them to make investment on innovation and modernization of technology. So, shareholders become a part of growth and innovation.
5. Diversification
Investors can spread risk and increase their potential returns by adding IPOs to their portfolio.
Cons
The main drawbacks or disadvantages of IPO can be highlighted as follows:
1. High Volatility
Shares are highly volatile due to rapid price swings after listing. Unpredictable volatility may lead to huge losses.
2. Lack Of Information
Generally, IPOs are issued by new companies having limited historical data, it makes harder for the investors to make proper investment decisions,
3. Difficulty In Allocation
It is difficult for small investors to obtain shares of popular companies. They may get small , insufficient or sometimes zero allotments due to oversubscription.
4. Possibility Of Overvaluation
There is a chance of overvaluation of IPO stocks that may not show the actual value of the company. If investors purchase stocks at inflated prices, they have to face huge losses in a price correction.
