InvestorQ : Can you give me some strong reasons why I should invest in IPOs and the benefits from the same?
Mahima Roy made post

Can you give me some strong reasons why I should invest in IPOs and the benefits from the same?

Aditi Sharma answered.
2 years ago

Here are 4 reasons you should serious look at investing in IPOs…

· You get access to quality unlisted companies. Look at the companies that have come out with IPOs in the last couple of years. Companies like D-Mart, Shankara Building Products, Dr. *** Pathlabs, Alkem, Pru ICICI Life, ICICI Lombard, HDFC Life and SBI Life have hit the IPO market. This has widened the choice in front of the small investor. The IPO price is fixed by the investment bankers in consultation with the issuer. Normally, the pricing is done in a way to attract maximum demand. In the last 25 years we have seen many companies that have give substantial returns to investors since the IPO. Some of the examples are Infosys, Maruti, Bharti Airtel, TCS etc. This will work in your favour.

· But can I not buy these shares in the secondary markets after they list? That is a standard question that a lot of investors ask. Of course, you can invest but good IPOs tend to list at a premium and that means you could miss out on the price movement. Also some of the IPOs (especially PSU IPOs) give attractive discounts to retail investors while applying in the IPO. This also works in your favour. Thirdly, the allotment process that SEBI requires IPOs to follow is loaded in favour of small and retail investors. Hence you have a very high chance of getting allotment in IPOs. When you can get these benefits in an IPO, why miss out on them?

· IPO disclosure standards are more stringent and that works in your favour. The focus of SEBI has been on protecting the interests of the retail investors and has therefore impelled companies and investors to follow higher standards of disclosure and transparency. This has been instrumental in making the IPO markets a lot more professional and safe for the retail investors. In the secondary markets there is a glut of information but limited insights. The IPOs manage to consolidate all the intelligence pertaining to the company into the prospectus. Therefore, you can get a lot of insights about the IPO from the prospectus.

· The ASBA rule also works in favour of IPO investors. This is a change in the last few years, which again favours retail investors. Retail investments in IPOs can be routed through the ASBA route. Applications Supported by Blocked Amounts (ASBA) ensure that the IPO allotment amount is debited to your account only after the shares are allotted. In an ASBA application, the application amount is only blocked in your bank account and it continues to earn interest as there is no withdrawal. Once the allotment is completed, only the allotment amount is debited to the bank account and balance is unblocked. Thus, unlike in the past, the small investor does not lose interest on the amount not allotted. Also there is no lock-in of funds in this case and hence is more economical.

IPOs may have their up and down cycles but they are certainly something to look forward to due to these advantages.