WE all need money for our daily survival.

Besides, we also need money for big ticket purchases in our lives, such as a home, a car and so on.

Similarly, even companies need money. It can be for funding their day to day working capital requirements, for expansion plans, for new projects, for buying machinery and other equipment etc.

One way companies raise money is by offering its shares to the public. This is done through an Initial Public Offer (IPO) .

What does it entail?
-- In an IPO, the company sells a certain percentage of its shares to the public at a certain price.

-- In the case of most IPOs these days, the price is not fixed and is determined by a book-building process. In this process, you can bid for the shares at a price (as per a price band) and the offer price is determined on the basis of the bids.

-- The company then allots a fixed number of shares to each investor in a given ratio. For instance, if you have applied for 100 shares, you may just get 10 shares allotted.

-- Alternatively, it refunds the money back if it is unable to allot shares due to over-subscription.

How to invest?

-- To begin with, you need a demat and trading account. You can contact any popular broking firm to open an account.

-- You can invest in an IPO by filling out a simple subscription form. You also need to attach your PAN copy along with the form. You can get this form from your broker. The simplest way to invest in an IPO is to do it online. All you need is an online trading account.

Should you invest in IPOs?
Sound investment principles always suggest that you apply in an IPO only after doing a complete study of the company.

Some parameters you must consider are:
-- Background of promoters
-- Industry outlook to which the company belongs
-- Reasons for raising funds
-- Business plans of the company
-- Financials
-- Risk factors
-- Pricing of the IPO

wealth recommends that you invest in IPOs only if you have the aptitude and information to take the right decision.

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