Investing in IPOs is hot! Especially in the ever growing Indian business space in the recent years. If you are looking to invest either for short-term quick profits or for long-term capital investments, IPO is one of the exciting financial products to look up to. Now when it comes to the ground reality, you need to consider 2 very crucial aspects:
Potential of the company filing the IPO
Stockbroker that can make your life smooth during IPO investments
We will talk about both of these aspects in length during the course of this article so that you are 100% sure of the direction you need to set pace towards. Let’s start with the IPO Part first.
Things to look in an IPO before investing your money
For beginners, this needs to be known that every business requires money to run itself. There are multiple ways to raise funds including Bootstrapping, Angel Investors, Venture Capitalists, Bank lending etc. All these modes of capital raising are done in private and most of the times, the lender gets a specific percentage of the company value in lieu of the principal amount lent.
An IPO or Initial Public offering is a mechanism by which a company that has been running on private funds so far, goes out the general public to raise money for their business. With an IPO, a company has a specific amount in mind they are looking to raise and the corresponding stake they are willing to share with the general public.
Now, although there are multiple factors that need deserved attention before you make up your mind to file an IPO, primarily we have listed out the top 5 aspects that MUST consider:
Yes, you may do that but it is going to be tough to find accurate and detailed information about a company that has been running privately in the past. Even though you are able to find detailed information and data points, it’s going to be tough to trust all that.However, there is a way or let’s say an indicator.
When an IPO is filed, the company filing for an IPO sets a specific percentage of large institutional investors along with the retail investors (a.k.a. general public).
Now, the general public is going to have limited information about the company but the institutional investors and their respective research teams will dig into the data in as much depth as possible. If the IPO has been able to attract over-subscription in its qualified institutional buyers (QIB) category, this will imply that the IPO is strong enough to be invested into.
Simply put, a QIB will not put its money into an IPO that makes no growth since. Thus, if the QIB category is over-subscribed, you shall not be waiting either.
Don’t get overwhelmed by the hype
There is going to be a lot of hype around the days of IPO filing. The company filing the IPO is going to make sure that potential institutional and retail investors go through multiple rounds of impressions about the IPO. These impressions can be made through newspapers, TV advertisements, financial websites, IPO bloggers and so on.
The idea is not to get caught in this influence storm while making a decision to go ahead with the IPO investment. Simply because this can potentially bias your thoughts at a subjective level while at this point in time you need to be 100% objective about the IPO growth potential and company’s past performance.
You must go through the prospectus for the issue. This piece of the document contains some of the most crucial information pieces such as company financials, its market record, it’s reasoning of filing the IPO, what are the company plans on IPO raised capital’s investment, any litigation records filed against the company in the past and so on.
Again, you must stay 100% OBJECTIVE during the course of decision making.
Keep a close eye on the over-subscription
What is Over-subscription? Well, there are high chances that the IPO may get subscribed multiple times than the actual number of shares opened up by the company for investors. For instance, if the company ABC opened up 1,00,000 shares for retail investors but over the course of the 3-day subscription period, retail investors subscribed for 30,00,000 shares instead – then the IPO is said to be over-subscribed by 30 times or 3000%.
Such happenings are common in the stock market depending on the company filing the IPO.
Thus, you must be aware of the fact that when an IPO is over-subscribed, there are chances that you are not going to get the same number of shares allocated as you might have applied for. In fact, you are going to get a proportional amount of shares depending on the over-subscription percentage. Your residual funds that could not be utilized for your IPO allotment, will be refunded to you within 21 days.
Fill out the form cautiously
Documentation is important. You need to make sure that you fill out every detail that is asked for including ECS refund (otherwise, you may be left out from the facility of getting a refund easily into your bank account), transactional details about the IPO, cheque to be issued, IPO application form and so on.
Your broker or agent will be able to help you out with the documentation but make sure you get it vetted before applying, otherwise, there is a huge chance that your application may get rejected and thus, you will stand no chance to get the IPO subscription.
That will be some blunder, right! Thus, be wary cautious while applying for the IPO, especially, if you are doing it for the first time.
Select a reliable Stockbroker
Last but not the least, you need to make sure that you have chosen a reliable stock broker that can provide you with an easy IPO application process. You need to have a Demat account to apply for an IPO. This is mandatory. You may also need a trading account later when you look to sell off or trade the stocks you have been allocated.
Most of the users stick to their banks for IPO investments. Although, it makes sense on the convenience part when it comes to the stage when they start trading in the secondary market (read stock market), the heavy brokerage charges eat up the profits to a huge extent.
Thus, it is adviced that you should consider all possible aspects before making a final choice on your stockbroker.
Secondly, the broker must be a prominent name in the market so that you can rely 100% on the brokerage house when it comes to efficiency of the process. Thirdly, the broker must be able to consistently provide reports and research on the company with the complete understanding of the IPO’s potential positioning in this stock market.
Finally, the last thing you want is average customer support. The service offered by the broker must be quick and to the point with minimum lags.
Nonetheless, in rest of the article, let’s talk about the 5 Top stock brokers for IPO investments that can make your life much simpler everytime you file for an IPO.
Top Stock Brokers for IPO Investments
Angel Broking is one of the prominent names in the stock market when it comes to full-service stockbroking. It provides:
Online account opening based on Aadhar card
Well designed trading platforms
Been around since 1987, thus it has been able to build trust factor over the years
Wide offline presence
Automated recommendations engine – ARQ for fundamental research
Motilal Oswal is another brokerage house from the full-service broking space. This broker has spent a lot of time at the institutional level and with that rich experience, can certainly be a lot handy when it comes to IPO investments. Like Angel Broking, Motilal Oswal also has an in-house research team and is going to provide you with the following values:
Online account opening based on Aadhar card
Wide range of trading products
Offers one of its kind, smartwatch stock market app
Yes, we have suggested thinking twice before opening an account with a bank based stockbroker but we also understand that some of our readers would still want to go ahead with one. Well, if that is the case, then you can think of using services of ICICI direct, a prominent broker coming from a brand name – ICICI Bank.
Here are some of the pros of this full-service bank based stockbroker:
3 in 1 Demat account that links your bank and trading account, easing off the fund transfer process
Huge brand trust
Wide offline presence, especially in 1st and 2nd tier cities
5Paisa is a discount brokerage house and is an initiative from India Infoline or IIFL. The best part of choosing 5Paisa is that you are going to pay much lower brokerage charges when you make up your mind on trading on the stock market or selling off all or part of your IPO holdings.
Some of the best values offered by this broker include:
Low brokerage charges across the financial segments
Online account opening based on Aadhar card
Free account opening and annual maintenance charges (AMC)
So, these are the recommended top stock brokers for IPO Investments.
At the same time, you need to realize that trading in the stock market has different values and requirements for each individual retail investor. It’s a possibility that brokerage charges are the primary factor for you while your friend may give the highest importance to research and recommendations. Thus, it’s important to understand your requirements first and then go ahead with stockbroker selection.
Furthermore, if you need assistance in selecting a stockbroker that matches exactly with your requirements, feel free to provide your details in the form below and corresponding broker details will be sent to you.