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IPO for beginners – Guidelines for beginners investing in IPO

Understanding the stock market is fiddly for many beginners. A rookie investor should study the market for a while, scrutinize the behaviour of the stocks, and observe the differences in the strategies of the companies and its impact on the share prices. With IPO you can make a lot of money in a very short span of time, if you are not hasty. Tactful and timely decisions can bring you very good returns over a period of time. That period maybe short or long depending on the equities purchased.

Here, we throw light upon a few guidelines on IPO for beginners.  

Know yourself

It is extremely important for you know the intention behind your investing. If you have been closely following the company’s growth, or you are familiar with the sector in which the company is working in, if you can assess the company’s growth potential and your substantial returns over a period of time – Then you can invest.

But make sure, you do not borrow money to invest in an IPO. There is no guarantee of returns. In case of a loss, the money goes into the black hole. And the loss should also be counted in the interest rate which you have to pay on the borrowed money. So, it is a wise decision to utilize your funds to invest.

Don’t bite off more than you can chew

The investment in IPO is very risky and the markets are often unpredictable. So, take an honest look at how much of loss you can bear on your investment. Caught up in the excitement of buying a new IPO, never cross that line!

Open a Demat account

For an investor to apply for shares, he should have a Demat account. What is a Demat account? Demat account is where the share certificates, government securities, mutual funds and any such financial instruments are deposited in electronic form. Without a Demat account, you cannot own any shares or trade in the stock market. You can open a Demat account in any of the registered Depository Participants (DP). You can open a Demat account with zero shares.

For online trading – Open trading account

To trade online which offers a lot of conveniences and saves time, one must have an online trading account. The stock market requires you to be registered with the stock-exchange through the registered members.  This trading account is linked to the bank account. When you want to purchase, you transfer the amount from the bank to the trading account and the trading account buys the share and credits the shares to the Demat account.

Big backers need not mean big returns

Big names in the list of investment banks or major stock brokers should not tempt you to buy the IPO they are backing. They may have different calculation scales for their backing. You should abide by the company provided facts and figures in the prospectus and focus on its growth potential before investing in an IPO.

Don’t fall for the hype

Remember that the company which is going public along with its investment banks have put in a lot of money into the process of IPO. They will not miss an opportunity to make it look like a piece of hot cake which is in demand. Do your research; get objective information from the official site of the stock exchanges.

Wait till the lock-in period is over to buy IPO stocks

Lock-in period is the time period which restricts the people who have received pre-IPO stocks to sell their shares. If you can wait, you can analyze the stock’s profitability. You can prevent falling victim to early volatility.

Market trends and IPO’s performance is related

The market-trend depends on various factors, and involves stocks from a range of sectors. They follow the stock market trend but they do not lead it. An IPO which is fundamentally strong is bound to do well in bullish trends of the market. It is a sure shot way to make quick money.

Last but not the least; the Company is not liable to return your money post investment in an IPO. You may want to credit your luck or your wise decision making skills when you get substantial returns.