Market classroom: what is an IPO, how do investors benefit by investing in it, know in one click

Mumbai (The Uttam Hindu): IPO means Initial Public Offering. In simple terms, when a private company raises money from the general public for the first time by selling its shares in the stock market, it is called an IPO. Earlier, such a company operates using funds from its promoters or a limited group of investors. When it needs more capital to expand its business, repay loans, or invest in new projects, it offers a part of its ownership to the public through shares. This entire process is known as an IPO.

The money collected from investors through an IPO is mainly used for business expansion, debt repayment, or future growth plans. For retail investors, an IPO is attractive because it provides an opportunity to buy shares at an early stage and at an initial price.

Experts say that investing in an IPO can offer multiple benefits, but it also involves risks. Many times, a company’s shares get listed on the stock exchange at a price higher than the IPO price band. If investors sell their shares on the listing day at a higher price, they can earn quick listing gains.

For example, if an IPO is issued at ₹100 and the share lists at ₹150, the investor makes a direct profit of ₹50 per share. If an investor chooses a strong company and holds the shares for the long term, it can generate significant returns over time as the company grows.

IPO investment also allows investors to buy into promising and growing companies at relatively lower valuations. In the early stages, companies often issue shares at attractive prices, which can lead to higher gains as profits and business scale improve. As the company performs better, the share price usually rises.

In addition, some companies distribute a part of their profits as dividends, offering investors regular income along with capital appreciation. By investing in an IPO, an investor becomes a shareholder, gains voting rights, and receives important company updates from time to time.

Experts also highlight that IPOs help investors diversify their portfolios by adding companies from different sectors. However, every IPO is not worth investing in. Before investing, it is important to study the company’s business model, financial health, and future plans to ensure sustainable and long-term benefits.