What is an IPO (Initial Public Offering)?
Initial Public Offering (IPO) is the process by which a company raises funds through sale of its stock to the investors for the first time. Generally with the help of an IPO, a private company goes to the general public and gets listed on stock market exchange. In other words, it can be said that in the name of an IPO, a company raises equity capital by issuing new shares to the public and these shares are further traded in an open market.
The Price or the Price Band of an IPO is decided by the company itself after consulting with the lead managers. The lead managers are generally the merchant bankers or syndicate members of the company. Initial Public Offering (IPO) can be made either through the fixed price method or book building method or sometimes in a combination of both. IPO is especially recommended to such investors who are new to stock market investment.
Initial Public Offering (IPO) gives investors a chance to buy shares of a company directly from the company at the price of their choice. Several times, there has been a big difference between the price at which a company decides for its shares and the price on which investor is willing to buy share. As a result, it gives investors a good listing gain for shares allocated in IPO.