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FIInvesting in IPOs sounds very cool! But should you invest in an IPO just because you know the brand or it is the "cool" thing to do?! Absolutely not, as your friends we can't let you do that! You need to evaluate your IPO investment before you take it on and here are the top 5 things you should consider:
1. Research on the company (how strong are the company financials, what are the company's reasons for issuing the IPO, what is the IPO valuation, who is the promoter and how well do we know their integrity and intent)
2. Funds raised (What amount is expected to be raised through the IPO, How will the proceeds be utilized - eg. debt repayment, capex, greenfield/brownfield expansion, Who are the underwriters)
3. Prospects (What are the growth opportunities, What are the potential risks, Are there outstanding legal cases, if any, against the company, What is the industry/sector/peer (other listed competitors) performance)
4. Market sentiment (How is the buzz around the company’s IPO, What is the general market and investor sentiment, Is the company valuation believed to be over/under valued)
5. What is the Lock Up period (It prevents insiders - promoters, PE investors, employees - from trading, Volatility increases near lock-up period expiry)
Be careful and consider these things before choosing to invest in IPOs!
Disclaimer: Investing in the stock market can be risky. IPOs are for a specific company and they may carry higher risk that other investment options. Please do your research on the companies/IPOs before investing. Do read all offer documents carefully before investing. Please consult a financial advisor if you are unsure about investment decisions. FinCocktail neither promotes not discourages investment in any of the companies mentioned.
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