What is an Initial Public Offering(IPO) And What Are The Benefits Of An IPO?

Let’s assume there’s a company named x in a country. The company has decided to expand. It requires a large amount of investment. So company x decides to sell a few of its shares in the open market, to generate capital. This method is called Initial Public Offering or IPO.

The way of investment has changed in due course of time. People in the early days like to invest in gold and real estate properties, which provides a massive return on investment.

People prefer investing in the stock market rather than gold and real estate. Through scientific research, it is observed, that the return in the stock market over a longer duration is better than investing in gold and real estate. At present, people are crazy about the upcoming ipos in the market.

There are multiple benefits of IPO. Let us highlight them.

Source: investmentu
  • Investment for the company: the main motive behind introducing an IPO is to generate capital for investment. A company introduces IPO when they feel they need investment for further expansion as they have reached their optimum level. An IPO helps a company to expand its area of operation, without any further liabilities. There is a mechanism called a buyback. Through this mechanism accompany reclaims the share from the public in the stock market. 
  • Opportunity for an investor: an investor tends to find an investment opportunity, through which he can gain massive benefits. Investor understands the market Trend, he looks at the company’s method of operation, and it’s a balance sheet and finally tries to predict the future. After conducting research analysis, if the investor finds the company in a positive limelight, he will invest in the company. On the other hand, an IPO provides an excellent opportunity for the investor to invest and gain profit.
  • To gain profit in a limited time: if a person invests in FD, he will gain a return of 5 to 6% per annum. On the other hand, the beer minimum return of any successful IPO is 5 to 10%. The intervention of IPO is completed in a span of 30 to 35 days. So smart investors will invest in a successful IPO rather than an FD, where they can get the same benefit in excess time. A highly successful IPO gives a return of 30 to 40%. There are certain cases where the return is almost double. So if you are a smart investor, you will like to invest in an IPO for a higher return.
  • To achieve short-term and long-term objectives: it is generally observed, that after a successful IPO, the share price of a company almost doubles itself within 3 to 4 years. So if the investor has a short-term goal, he will investor money in IPO over 4 years to double his income. On the other hand, if the person is a passive investor and has a long-term goal, he will like to invest the money for at least 30 to 40 years. If the company is highly successful, then its share price will be 400 to 500 times, its initial value.

We can say, IPO has multiple perks. Not only did benefit the company but also its investor. Since it is a high-risk involving business, you are advised to trade carefully, before applying for the upcoming ipo.