With the onset of the new year 2020, there are lots of new things lined up for the investors. Newer plans, newer resolutions, newer investments, new mutual funds and so on. So are going to come new IPOs in the market form companies that are trying to establish themselves or are trying to reach out to a particular audience, whatever the reason may be, new IPOs will be introduced in the year 2020. It is very obvious and common of an investor to get attracted to the low selling price of these IPOs and the lucrative offers along with them. companies generally introduce IPOs to gather or increase their working capital and diversify into a different segment. When investors buy IPOs from companies, they provide easy money to the companies and in turn hold a share in the company’s stake. As an investor, you must act extra careful when it comes to investing in IPOs.
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5 things you must know before investing in IPOs in 2020
Go by your investment objectives and profile
To begin with, you must revise your investment objectives before investing in any instrument. Especially when it is about IPOs you must see if your investment objectives allow you to invest in an avenue that probably does not have much of a history to it to compare from and refer. Another aspect of investing in IPOs is to understand and realize your investor profile in terms of risk.
Simply put, as an investor your risk profile will play a vital role in deciding where you must invest and how much can you afford to put at stake. A low-risk profile investor generally looks for avenues that are not too risky and come with certain or assured returns. A high-risk profile investor feels free to experiment with the available options and make investments.
Investing in IPOs can be a little tricky as investors do not have much to compare from or take reference from as a past trend or history. Although relying only on the past results is not the right way of investing but is an important aspect. So, before you make an investment in an IPO, make sure you are well-versed with your investment objectives and risk profile.
HDFC Mutual Fund, which is the most profitable AMC in India, gets the much awaited nod from Sebi for its IPO.
Dig deep into the IPO offering company
The next step is to dive deep into the company you are planning to invest in the IPOs of. It will a little extra effort than a normal mutual fund investing but your hard-earned money is at stake. There might not be easy availability of information regarding the company offering IPO but you can try gathering maximum possible information by gathering the official brochures and prospectus of the company and the newly set offering. Even if it takes a lot of your time, you must follow this regime to land in good hands with your money.
You can also refer to the SEBI website to check for the information regarding the target company and its authenticity. If you are not able to understand some terms or conditions or any other kind of information, seek help from an expert. A fund manager is an expert who deals in investing in mutual funds, IPOs, etc. you can always look forward to some expert advice.
You must also refer to the recent developments that may have happened in and around the company and the related industry. Sometimes, the company may be in a really bad state such so that it doesn’t even have enough to run for few months, then also IPOs may be introduced to cover up the bad state and manage some easy money from the investors.
You must remember that although IPOs promise very high returns at a comparatively lower purchase price, there is no obligation or guarantee of the same. The companies are not bound to return the promised amount or return percentage. Hence, it becomes all the more important to exercise vigilance and discipline.
UTI Mutual Fund is the seventh-largest asset management company in India and it has also filed for its ipo with SEBI
Look for where your money is going
As mentioned above, there might be multiple reasons for a company to launch its IPOs that may or may not interest you. before investing in an IPO, read about the company’s plan for utilization of the proceeds generated by IPO launch with SEBI . If a major chunk of the proceeds goes into managing the debts then you must rethink the investment. On the other hand, if the company has plans to get into a new venture or are planning for expansion along with some debt repayment then the IPO may prove to be promising and is a good investment avenue.
Keep an eye on the valuation
Valuation is a little calculative part but holds high importance. Looking at the valuation of a company will give a fair idea of how the company is doing with respect to others in the same business. Techniques like price to earnings ratio, return on equity, price to book ratio can be used to measure the valuations.
Do not fall for the names associated
Generally, an IPO is backed by a list of brokers, promoters and other parties of interest which create an illusion of high worth. Before investing money, conducting good research is quite important keeping in mind the above-mentioned aspects. Your investment decision must be based on facts and numbers.