IPO stands for Initial Public Offering which is the process of transforming a privately-held company into a public company.

This process also creates an opportunity for smart investors to earn a handsome return on their investments.

Initial Public Offering (IPO) can be defined as the process in which a private company or corporation can become public by selling a portion of its stake to investors. An IPO is generally initiated to infuse the new equity capital into the firm, facilitate easy trading of the existing assets, raise capital for the future, or to monetize the investments made by existing stakeholders.

How can you benefit from an IPO?

First-mover advantage
This is especially true when reputed companies announce an IPO. You get a chance to buy the company’s shares at a much lower price. This is because once the company’s shares reach the secondary market, the share price may go up sharply.

High returns
If the company has a potential to grow, buying shares in an IPO can benefit you. Strong fundamentals of the company mean that it has a good chance of growing bigger. This can be advantageous to you as well. You stand a chance to earn good returns over the long-term.

Listing gains
When a company gets listed on the stock market, it may be traded at a price that is either higher or lower than the allotment price. When the opening price is higher than the allotment price, it is known as listing gains.

Initial Public Offerings are generally considered beneficial as it lets the issuer company enlarge their equity base and increase their exposure and prestige. At the same time, it provides investors with an opportunity to gain handsome returns.