There has always been this debate of whether one should invest through IPOs or through secondary markets. Before demat accounts even existed, one could invest in secondary only through the basic lot sizes. This made equity investment almost impossible for small investors. Here the only way out was to invest through IPO. But, with the initiation of demat accounts, this issue was solved.
Yet, IPOs are garnering a lot of interest of the investors. So the question arises is investing in IPO a good idea now? IPO in India does have some advantages over secondary markets.
1. Access to Unlisted Stocks
For a small time, investor, it is no more a limitation to not get access to good quality stocks. IPO has seen many quality unlisted names enter into the Indian stock market. IPO prices are fixed by issuers. The prices can lead to maximum demand and hence there is space for small-time investors to invest too.
2. Access to Quality PSUs Owned by The Government
Government-owned companies have a different level of safety when it comes to investing. As there is government ownership, there is also a chance of healthy dividends coming your way. The operating environment is also comfortable. Government PSUs get overpriced by the time they get listed on the secondary market. IPOs give you an upper hand here.
3. Preferential Treatment for Small Investors
SEBI has taken all the required steps to give small-time investors access to IPO investments and also get good returns from it. There have been reforms in favor of small-time investors. One such reform is that small-time investors can now get a discount on the issue price applicable to HNIs. There are higher allotments available for these investors, which was initially not possible. These provisions are not available in the secondary markets.
4. Tight IPO Norms by SEBI
SEBI has made sure that there is the highest level of disclosure and transparency by companies towards investors. Compared to the limited access to information in the secondary market, IPOs have become much more professional and safe for investors.
5. Information Symmetry
When it comes to investing in IPOs, the control of information is with the company itself. There are no analysts involved. All the information is available to the investor through the prospectus of the company.
6. Economical after the ASBA Rule
The inclusion of ASBA has made sure that you get the money into your account only after the shares are allotted. This is an economical option as you do not lose on the interest until the time the shares are allotted.
IPOs are certainly a better option over the secondary markets. Yet it depends on your investment and risk-taking capability. You need to do your research and then decide what suits you best.