The year 2021 has been an exciting one for the stock market and especially for the primary market. Many big name initial public offerings (IPOs) hit the market and many more have been lined up for the coming few weeks and months. These IPOs have seen great retail investor participation especially from Gen Z investors. Many are lured to IPOs due to the promise of stellar listing gains.
So far in 2021, 41 companies listed on the Indian stock exchanges apart from the ones listed in overseas markets and thus far they have been outperforming the traditional IPO day swings that occurred during the boom in 2009 and 2011 and several years in the past.
If you are someone who is planning on dabbling in the primary market by investing in an upcoming IPO, consider these 5 legal and investment aspects before putting in your money for the subscription.
1. Always read at the prospectus
The prospectus is the holy document which invites the potential investor into an offering. The prospectus contains the bid range, the minimum bid and the opening and closing dates of the IPO. While it is likely that you may not miss the dates, what could be missed is the price band. With the increasing trend of loss making companies hitting the market with their IPOs, sometimes the price range would be decided by the bids received. This is an expectation game. It would be wise to give a standing instruction to your broker as to what would be the minimum number of shares you would like to acquire and at what price range. Yes, it could be like the popular show ‘Pawn Stars’- take it or walk away, where you may want to ‘walk’ if it does not settle well within your budget. This way you can use this amount to invest in another more suitable investment option.
2. Investing via individual or joint account?
The account (for a common person) from which the investment for the IPO is made is either a joint account or an individual account. With the increasing change in familial settings, it would be prudent to discuss with your joint account holder as to whether they are comfortable with the process and to document the same in the event that something were to affect familial relations. There could be a contractual arrangement between the family members for a specific class of investment, where they agree to the risk potential within the range. This could be multi-party agreements which take into account the addition to the family and serves as a ‘go-to’ document should the uncertain occur. Discuss and document the discussions in a larger family setting -which is of course personal and not for anyone’s business to know. The contract could also …….