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IPO

IPO

  • Meaning of IPO:- An Initial Public Offering (IPO) is the process by which a private company issues shares of stock to the public for the first time. This allows the company to raise capital and provides an opportunity for investors to buy shares in the company. When a company goes public, its shares are listed on a stock exchange and can be bought and sold by the public. An IPO can provide an opportunity for investors to buy shares in a company before it is listed on a stock exchange. This can potentially offer a lower price than its later market value, which can provide an opportunity for significant returns if the company performs well in the stock market.
  • Different routes to invest in IPO:- 
  1. Fixed Price Method- The corporation sets a predetermined price for the shares being offered in the initial public offering (IPO) under the fixed price approach. Then, shares can be bought by investors for a set price.
  2. Book Building Method- The company specifies a price range for the shares being offered in the initial public offering (IPO), and investors can bid for shares within that range. The demand for shares determines the final price.
  3. Reverse Book Building Method- The reverse book-building approach, is frequently employed in India and is similar to the book-building method in that the company places the bids and allots the shares to the investors at a price it determines.
  • IPO Benefits to Firms:- 
  1. Raising Capital- Through an IPO and subsequent investment rounds, businesses will raise substantial sums of money to support their general corporate operations, expansion potential, R&D, marketing, and capital expenditures. 
  2. Reducing Corporate Debt- To lower interest expenses, boost cash flow, and enhance their debt-to-equity ratio, public firms may repay the debt through the IPO or future share sales. 
  3. Gaining Higher Share Valuation- Shares that are traded publicly on a stock exchange are more liquid than shares that are kept privately. The stock price and company market cap valuation are higher.
  • Meaning of ASBA- An alternate payment method for issues is the Application Supported by Blocked Amount (ASBA) Procedure, in which the application funds are kept in the investor's account until the issue's basis of allotment is finalized. With the help of the ASBA process, investors can apply through Self Certified Syndicate Banks (SCSBs), where they already have bank accounts, and bid with a variety of alternatives. SCSBs are banks that meet the requirements imposed by SEBI. Accepting the applications, verifying them, blocking the funds up to the amount of the bid payment, uploading the information to the NSE's web-based bidding system, unblocking after the basis of allotment is determined, and transferring the funds for the allocated shares to the issuer are the steps that SCSBs would take.

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