A new share issue is a way some people enter the stock market. Others purchase shares already traded on an exchange. Both can build an equity exposure. But each path operates in a different way.
Seeing each route clearly can help new investors match a choice to their goals, budget and risk limit.
Full Form of IPO and Basic Meaning
Full form of IPO is Initial Public Offering. This marks the first public sale of the company’s shares. The IPO happens in the primary market.
A company can get money by selling new shares. It can use the money to grow, pay down debt or for daily needs. An IPO may also be an offer for sale. Then existing owners sell off some of their stake.
The firm fixes the price or price band. Investors apply on the fixed dates for the number of lots. Bids do not guarantee allotment. High demand may lead to a small allotment or no allotment.
Once listed the shares are then traded on an exchange. “Then they go to the secondary market.
What is the second market?
Listed shares are traded in the secondary market. An investor buys from another investor. Not every trade results in a cash inflow to the firm.
Share prices move during the day. Demand, supply, news, results and market mood can all affect them. The live price is shown to the buyer before an order is placed.
Investors can opt for a market order or a limit order. If there’s a match, the order goes through.
IPO vs. How to Buy in the Secondary Market
Buying Method
IPO application needed before listing. The bank blocks the bid amount through ASBA or UPI till the allotment is done.
A trade on the secondary market requires a buy. The share must be quoted already. Trade takes place when a seller agrees to the price.
Pricing Method
An IPO involves a fixed pricing or a price band. The offer papers detailed how the firm determined the value.
A listed share has a current price. It can go up or down during trading hours.
Data for the Study
For an IPO, read the Red Herring Prospectus. It details the firm’s work, risks, funds, owners and previous accounts. It also gives the reason why the firm is seeking funds.
Annual reports, results, exchange filings and company updates for a listed share. Historical price and volume data could help the study.
Allotment & Choice
IPO allotment is done on demand and issue rules. A valid bid may not be allocated any shares.
In the secondary market, the buyer sets the price and the size. If no seller accepts the limit order, it can remain open.
Hazard
An IPO can be a volatile event on the day of listing. It may also have a short public history. The issue price may not be the same as the later market price.
A listed share can fall on the back of poor results, sector stress or bad news. Either route involves the risk of loss. Neither way has a hope of return.
How To Invest in IPOs
Here are the steps readers can take to learn how to invest in IPO:
- Open a demat account and a trading account
- Choose a SEBI registered broker
- Link bank account & complete KYC
- Check the lot size and issue date
- Read the offer papers and risk notes
- Look at sales, debt, cashflow
- Open the broker app’s IPO page
- Choose the bid price and the lot count
- Allow ASBA or UPI fund freeze
- After the issue is closed, check the allotment
Shares are allotted if demat account is available. Otherwise the sum blocked is released.
Bajaj Broking allows access to IPO bids, demat and share trades. This allows a beginner to use a single account for both routes. The IPO section can help the bidding process. Each person should still read the offer papers and assess risk before any bid or trade.
Where should a beginner start?
The secondary market may be suitable for a learner who wants to buy a few shares. It provides time to track a listed company and learn order types.
A person can study the full offer papers and an IPO might suit. The person should also take allotment risk and price swings after listing.
A simple start is to fix a sum. Use only funds allocated for equity purposes. Research the company and industry. Look at debt, sales, profit and cash flow. Don’t pick based on social media buzz or listing hype.
Conclusion
The full form of IPO is Initial Public Offerings. It’s a primary equity sale. The secondary market deals with shares that have already been listed on an exchange.
An IPO requires a bid , blocked funds and allotment . A listed share must have a buy order at the market price. Newcomers should compare data, price, process and risk. The selected path should suit their objective, budget and timeline.
