An IPO, or initial public offering, occurs when a firm makes its shares accessible to the general public for the first time. Investors might profit from equities that are expected to rise in value over time. There are several reasons to consider investing in an initial public offering, but there are also hazards associated. Before making any investment choice, investors should be informed of the associated rewards and hazards.
The initial public offering helps businesses to access capital even during economic downturns when banks are hesitant to lend. It enables businesses to be listed on major stock markets and increases their appeal to prospective investors. It contributes to increased transparency in commercial transactions.
Enhanced Liquidity
Investors may sell a company’s shares on the open market after it has gone public. This enables investors to profit from their profits immediately rather than waiting for their shares to be repurchased. Because a company’s shares may be purchased or sold at any moment, it provides investors with increased liquidity.
Diversification
When a business becomes public, its shares are traded on an exchange by investors. This increases investor variety since no one investor owns a majority of the company’s outstanding shares. As such, investing in the shares of a publicly listed corporation diversifies investment portfolios.
Increased Access to Capital Markets
An initial public offering enables businesses to receive funding from institutional investors, which is sometimes inaccessible through private sources such as venture capitalists or angel investors owing to securities laws’ legal and regulatory constraints.
Additionally, since these exchanges are open markets that are accessible to a large number of investors through broker/dealers and other financial intermediaries, publicly listed firms have access to cash that would not be available otherwise.
Raise Funds
The upcoming ipo is a strategy for raising capital for the firm. According to SEBI norms, a firm may utilize an IPO to raise to 20% of its capital from the market. This is advantageous for any firm seeking to develop and accomplish great things.
Boost Brand Equity
Trust and credibility are the foundations of brands. By making a product or service visible to the public, you increase customer trust in your brand. This results in increased sales and profitability.
Management of Disciplines
Going public incentivizes management to prioritize profitability above other objectives like development or expansion. Additionally, it simplifies dialogue with shareholders, since they cannot conceal their difficulties.
Outsiders’ Viewpoint
When a firm goes public, it gains an outside view of its business model, marketing strategy, and other factors that may jeopardize profitability.
Pre-IPO investors may also profit when a business goes public, but only if the firm performs well. If the first public offering fails, these investors may lose money just as rapidly as any other investor purchasing shares directly from a public business.
Finally,
Initial public offerings such as LIC IPO enable businesses to obtain capital without relying on banks or financial institutions, which may impose exorbitant interest rates on their loans. Additionally, it enables current investors to sell their shares without paying capital gains tax.
