What is IPO ?
An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. An IPO is also sometimes known as "going public." Technically, an IPO is the offering to sell but virtually all IPOs result in all the stock offered being sold. IPOs are generally managed by companies that specialize in handling IPOs and have experience in determining what the likely IPO offering price should be. If the IPO manager determines that the stock will not sell at an offering price that is acceptable to the company, the application for an IPO is usually withdrawn until a better time. As soon as all shares of an IPO have been sold, the stock is now tradable through stock exchanges or specialists that trade in the stock and the stock price may go up or down
Basis of Allotment or Basis of Allocation is a document publishes by registrar of an IPO to stock exchanges and IPO investors. This document provides information about final price fixed for an IPO, issue subscription (bidding) information or demand of an IPO and share allocation ratio. The IPO allotment information is categorized by number of shares applied by an applicant. For each such category detail bidding information is provided in this document including number of valid application received, total number of share applied, ratio of the allotment and number of shares allocated to the applicants. Ratio of the allotment is a critical field for IPO's oversubscribed multiple times. This field tells how many applicants will receive single lot of shares among a certain number of applicants. For example, ratio 1:8 means only one out of eight applicant received one lot of shares; ratio value 'FIRM' means all the applicants are eligible to receive certain amount of share.
About Public Issues
Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both. There are two types of Public Issues
| ISSUE TYPE | OFFER PRICE | DEMAND | PAYMENT | RESERVATIONS |
|---|---|---|---|---|
| Fixed Price Issues | Price at which the securities are offered and would be allotted is made known in advance to the investors | Demand for the securities offered is known only after the closure of the issue | 100 % advance payment is required to be made by the investors at the time of application | 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications |
| Book Building Issues | A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. | Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period. | 10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application | 50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors |
More about Book Building
Book Building is essentially a process used by companies raising capital through Public Offerings-either Initial Public Offers (IPOs) or Follow-on Public Offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.
The Process:
IPO Important Link Committee Info. Public Issues: Draft Offer Documents filed with SEBI Public Issues: Red Herring Documents filed with ROC Public Issues: Final Offer Documents filed with ROC Rights Issue: Draft Letters of Offer filed with SEBI Rights Issue: Final Letters of Offer filed with Stock Exchange
Other Useful Links
http://www.sebi.gov.in/faq/pubissuefaq.pdf
What is Mutual Fund ?
A Mutual Fund is a pool of money that is invested according to a common investment objective by an Asset Management Company (AMC). The AMC offers to invest the money of hundreds of investors according to a certain objective. Investors buy a scheme if it fits in with their investment goals, like getting a regular income now or letting the money accumulate over the long term.
Why should I invest in Mutual Fund?
Investors with small portfolios may not have the necessary expertise nor get the required diversification across debt and equity products. For example, for as little as Rs. 1,000, an investor can approach most schemes and get well-diversified portfolios, across product classes and instruments. The money is invested by market experts called Fund Managers.
Is investing in Mutual Funds safe?
The Mutual Fund industry is well regulated in India. The market regulator, the Securities and Exchange Board of India (SEBI) has ensured that a repeat of the vanishing companies does not happen here. Therefore, Mutual Funds in India are in the form of a Trust. This means that the money belongs to the investors and is only held in the name of the trust. The investment arm, the AMC, acts as a fee-for investment manager and does not own the money. This does not mean that the investments are risk-free. Investors need to take the risk of volatility or bad management and money can grow or lose value depending on the market and investment decisions. However, sensible Mutual Fund investing is a good way to include equity and debt in individual portfolios to see realistic growth.
TYPES OF MUTUAL FUNDS
Systematic Investment Plan
Systematic Investment Plan (SIP) is a disciplined way of investing, where you invest fixed amounts at a regular frequency. You often decide to start saving and investing regularly, but get caught up in your day-to-day activities and forget investments. SIP, the time-tested investment approach helps bring in the much-needed discipline, and has shown good results in all the market conditions.
How does SIP work?
It is a very simple, yet powerful concept. Once you have identified the fund that you want to invest in and the savings required to achieve your goals, all you have to do is to give an ECS instruction to your bank to debit your account directly without the hassle of writing individual cheques. However, you have an option of giving post-dated cheques as well.
What’s special about SIP?
To get you into the habit of saving regularly, SIP puts two powerful forces to work for you: Rupee Cost Averaging
| Month | Amount you invest | NAV | No. of Units |
|---|---|---|---|
| 1 | Rs. 1000 | Rs. 10 | 100.000 |
| 2 | Rs. 1000 | Rs. 12 | 83.333 |
| 3 | Rs. 1000 | Rs. 10 | 100.000 |
| 4 | Rs. 1000 | Rs. 8 | 125.000 |
| 5 | Rs. 1000 | Rs. 10 | 100.000 |
| Total | Rs. 5000 | Rs. 50 | 508.333 |
The average NAV = 50/5 = Rs. 10.00
Your average price = Your total Investment / Total No. of Units = 5000/508.333 = Rs. 9.84 What you see from the table is fascinating aspect of Rupee Cost Averaging. It makes you buy fewer units when the price is high and more units when the price is low, thereby bringing down your average cost. Moreover, this gives you the same discipline as investment professionals.
What is Capital Market?
The capital market is the market for long-term loans (debentures & bonds) and equity capital. Companies and the government can raise funds for long-term investments via the capital market. The capital market includes the stock market, bond market and primary market. Thus, organized capital markets are able to guarantee sound investment opportunities. The capital market can be contrasted with other financial markets such as the money market which deals in short term liquid assets and futures markets which deal in commodities contracts.
What is Financial Market?
The financial markets are markets which facilitate the raising of funds or the investment of assets, depending on viewpoint. They also facilitate handling of various risks. The financial markets can be divided into different subtypes: Capital markets consists of:
These markets can be either primary markets or aftermarkets.
What is Stock Market?
A stock market is a market for the trading of publicly held company stock and associated financial instruments (including stock options, convertibles and stock index futures). Many years ago, worldwide, buyers and sellers were individual investors and businessmen. These days markets have generally become "institutionalized"; that is, buyers and sellers are largely institutions whether pension funds, insurance companies, mutual funds or banks. This rise of the institutional investor has brought growing professionalism to all aspects of the markets.
What is Money Market?
The money market is a subsection of the fixed income market. We generally think of the term "fixed income" as a synonym of bonds. In reality, a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt that matures in less than one year). Money market investments are also called cash investments because of their short maturities. Money market securities are essentially IOUs (an abbreviation of the phrase "I owe you") issued by governments, financial institutions and large corporations. These instruments are very liquid and considered extraordinarily safe. Since they are extremely conservative, money market securities offer significantly lower returns than most of the other securities.
Who are the main participants in the capital market?
The capital market framework consists of the following participants:
Who are the main participants in the capital market?
The following are the different types of financial instruments-
Debentures
A debenture is the most common form of long-term loan taken by a company. It is usually a loan repayable at a fixed date, although some debentures are irredeemable securities; these are sometimes called perpetual debentures. Most debentures also pay a fixed rate of interest, and this interest must be paid before a dividend is paid to shareholders.
Bonds
A bond is a debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.
Preference shares
Preferential shareholders enjoy a preferential right over equity shareholders with regards to: Receipt of dividend Receipt of residual funds after liquidation However, preferential shareholders do not have voting rights; they are entitled only to a fixed dividend.
Equity shares
Equity shares represent proportionate ownership in a company. Investors who own equity shares in a company are entitled to ownership rights, such as:
Government Securities
The Central Government and the State Governments issue securities periodically for the purpose of raising loans from the public. There are 2 main types of Government securities:
Dated Securities: have a maturity period of more than 1 year Treasury Bills: have a maturity period of less than 1 year
How do I buy financial instruments as investment options?
One cannot buy directly from the market or stock exchange. A buyer has to buy stocks or equity through a Stock Broker, who is a registered authority to deal in equities of various companies. In effect a lot many intermediaries might come in between the buyer and seller, as brokers do their business through many sub-brokers and the like.
How risky is the Stock Market?
The general theory goes that the higher the profit, the greater the risk. Since there is scope for high profit in the Stock Market, investing in the Stock Market can be risky. In fact, more than 80% of the people who put money in the market lose it and a majority of the rest are barely able to protect themselves from losses. Only a minuscule minority of investors are able to garner any substantive profits.
If Stock Market is so risky, why are people in it?
Basic human psychology. Men want profits- big and fast. Not many are deterred by the risks involved. The fact is that investment in the stock markets can give, potentially, the fastest ROI (Return On Investment), as the value of a stock can rise pretty fast, ensuring huge profit for investor. People buy shares in a company for either of two reasons:
How can I achieve success in stock market?
The precept is very easy. their investment, saving your investment is the first and most important part. This can be done by ensuring that you do not put your money in a company that does not show solid prospects. Fly- by- nights companies or companies whose shares touch the roof suddenly, need to be avoided. Companies that show a steady prospect are good to invest in. Needless to say, this process involves close acquaintance with market movements and a thorough understanding of the concepts involved. You should know when to dump your shares especially when they are becoming just junk papers.
The second thing is that adequate market knowledge is very important especially when you have invested in the stock market. One should be patient and judiciously responsive to market swings. Of course, luck is also a major factor.
What is the best suggestion for investment?
Undoubtedly, it is 'Don't put all your eggs in the same basket'. It is very tempting to make all your investment in the same sector when their stocks are going up, but since market trends are very volatile, you are, at the same time, making yourself extremely vulnerable to lose all your money. Dealing with single sector investment requires razor sharp timing with zero margin for error - a tall order in such a speculative and volatile business. Hence, it is always advisable to make investments in different companies and in different sectors, so that you can achieve stable portfolio diversification and compensate losses in one sector against profits in an another sector.