IPOs & IFOs
What are IPOs & IFOs?
An Initial Public Offer (IPO) is an offer to sell securities of an entity for the first time, and subsequently list them on the stack exchange(s).
When a new scheme of an Asset Management Company is offered for the first time – it is called an Initial Fund Offer (IFO) or a New Fund Offer (NFO).
Investors could be – Retail Investors, HNIs or Institutional Investors.
Why do organisations make IPOs & IFOs?
IPOs allow companies to raise capital to meet their expansion needs, founders and other owners to dilute their holdings, and enhances the brand image of the company.
Through IFOs asset management companies raise large sums of money to kick start their new schemes. The money so collected is invested in assets as per the investment objectives of the said scheme.
How is the price of the offer determined?
There are two kinds of issues, from a price point of view – Fixed Price Issue and Book Building Issue. In the former, the company fixes a price for the issue, and at that price, the shares are issued. In the latter, the company fixes a price band 1i.e. a floor price and a cap within which the investors can make offers to the issue.
Who regulates these issues?
These public issues are regulated by SEBI. The other participants who come together to make such public issues possible are – Stock Exchanges (shared get listed here after IPOs), Depositories and depository participants, Stock Brokers, Mutual Funds, Merchant bankers, Credit Rating Agencies, Financial Institutions, Investors, etc.
When is it viable to invest in IPOs & IFOs?
It makes sense to invest in an IPO when the company being listed is of interest to the investor. Say you like its future growth prospects, its leadership and management, its top and bottom line, its positioning in the market, or any combination of the above. In short, you like the business enough to want to own a part of it.
Investors opt to invest in new fund offers based on the investment objectives, the fund manager, the promotor brand, lock-in periods, etc.
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