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Things to keep in mind before investing in IPO

This year many big companies are coming with their IPO. After the second wave of Covid, a big jump has been seen in the IPO market. If you are planning to invest money in IPO, then you must keep these things in mind.

Red herring prospectus

  • Before investing money in IPO, definitely check the draft red herring prospectus.
  • The company files a draft red herring prospectus (DRHP) with SEBI before raising funds by selling shares.
  • This shows where the company will use the funds raised.
  • It also gives information about the potential risk to the investors.

Use of funds

  • It is important to know where and how the company is going to use the money raised from the IPO.
  • The company is good for the investor who says that the money is used to partly repay the debt and increase the business or for general corporate purposes.

Understand the business of the company

  • Before investing money in IPO, definitely understand the business of the company.
  • Invest in the same company whose business is doing well in the market.
  • Do not invest in a company whose business is not doing well.
  • Analyze the business potential of the company.
  • The company should have a good business model.
  • The strength and strategy of the company can be ascertained from DRHP.
  • Find out how the company has performed over the years. How much profit or loss has the company made? If the company’s profits and income have increased, then definitely invest.

Get information about people associated with the company

  • Before investing, definitely get information about the promoters and management team of the company.
  • Promoters and management of the company are responsible for taking the company forward. They play an important role in all the work of the company.

Be clear about investing

  • Decide whether you are investing in IPO for listing gain or long term investment.
  • The listing gain depends on the mood of the market.
  • Long term investment depends on the growth and work of the company.

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