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Initial Public Offerings (IPOs) often attract strong interest among Indian investors. However, it is important to approach them with a balanced view. When a company is going public, it doesn’t always mean financial stability or long-term growth. The excitement around IPOs can sometimes lead to misunderstandings. So, what are the most common myths associated with IPO investing that investors should look for? Let’s break down a few misconceptions in this blog.
IPO Investment—An Overview
An Initial Public Offering (IPO) is a process where a private company offers shares to the public for the first time, making it a publicly traded company. This allows the company to raise capital to fund growth, pay off debt, or achieve other business objectives. But there are many myths associated with IPOs; let’s have a look at them.
5 IPO Myths in India
Myth 1: Investing in an IPO leads to high returns.
Reality: It is a misconception that an IPO is a way to make money. The performance of an IPO varies on multiple factors, such as market conditions, the company’s current financial health, and business model. If the IPO is overpriced, then it may not be able to generate returns after listing.
Myth 2: A famous IPO is a good investment.
Reality: Many investors may think that an IPO with high demand or oversubscription guarantees success. However, oversubscription shows demand, but it does not guarantee long-term returns. Some IPOs create hype through aggressive advertisements, showing them more valuable than they are. Early investors, private equity firms, often use an IPO as their exit strategy. They sell the shares at high prices, which leaves retail investors with high-priced shares.
Myth 3: Investing in IPOs is a risk-free investment.
Reality: Many investors perceive IPOs as safe investments. This unwanted hype often makes them gain more money in a shorter time. This is one of the key myths of IPO investments.
Myth 4: When a company goes public, this means it is super-rich.
Reality: It is a myth that companies launching IPOs are financially sound. However, most companies launch an IPO to generate capital. They may look for business expansion or to enter into new markets.
Myth 5: Becoming an early investor through IPOs.
Reality: Many investors think buying an IPO means investing at the beginning of a company’s growth. But when a company goes public, often the early investors have already gained from the profits.
Click here to learn what you should do before investing in an IPO.
Final Thoughts
Apart from being informed about the IPO myth and gaining clarity, investors should develop IPO investment strategies and gather insights on how to invest in IPOs. Investors should also find out if the price is reasonable and always make informed decisions.
