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Public issue of shares means the selling or marketing of
shares for subscription by the public by issue of the prospectus. For raising
capital from the public by the issue of shares, a public company has to comply
with the provisions of the Companies Act, the Securities Contract Regulation Act,
1956 including the Rules made thereunder and the guidelines and instructions
issued by the concerned Government authorities, the Stock exchanges and SEBI
etc.
When an issue or offer of securities is made to new
investors for becoming a part of the company is called a Public Issue. The public
issue can be of two types i.e Initial Public offer (IPO) and Further Public
offer (FPO). A company can make an Initial Public Offer of equity shares and
other security which may be converted into or exchanged with equity shares at a
later date. When a company makes an issue
of securities for the first time to the general
public it is called Initial Public Offer or IPO. This paves way for listing and
trading of the issuer’s securities in the Stock exchanges.The company issues
such securities in order to run the
business efficiently.
The IPO is very well known due to its high potential for
earning in a very short period of time. It is issued in a primary market i.e
direct from the companies when the fresh issue
of shares is made by them. Here are a few steps to purchase an IPO.
·
Demat
account
An investor should have a demat
account in any recognized bank to buy an IPO. Proper trading can only be done
through a demat account. It is compulsory to have a bank account, a pan card,
and an Andhar card to open a Demat
account.
·
Purchase
of Shares
If the trading is done offline
then the person has to buy an application form from the broker and has to fill
the required details. But if the trading is done online then the person has to
login to the trading account and select the IPO which the person intends to buy.
·
Transfer
of money.
The exact amount of money for the number of shares that one intends to purchase
should be transferred either through cheque in case of offline mode or
through the money should be transferred to the trading account from the banking
account.
·
Transfer
of Stock
The shares will be transferred to the investor will be sent to
their Demat account. This transfer will be made only after full payment of the
application or the application money has been paid to the company offering
Initial Public offer
A issues company cannot make any public issue of securities
unless a draft offer document has been filed with SEBI through a Merchant
banker at least days prior to the registering of the prospectus with the
Registrar of Companies (ROC) or filing the letter of the offer with the
designated stock exchange. If SEBI specifies change on the draft prospectus within a specified number of days from the
date of receipt, the company or the head manager to the issue shall carry out
such changes in the draft prospectus or comply with the observations issued by
SEBI before filing the Prospectus with ROC.
In spite of all the risks, it is usually noticed that IPOs
attract potential investors as they are freshly issued by the company. The
company offers these issues basically to raise capital for its business with
the vision to expand it. Often the IPOs are taken up by underwriters. The
underwriters use different methods to sell these issues to the public. In most
of the cases, the underwriters buy these stocks at a loss. The underwriters
offer a price called the offering price of the IPOs to the public or the
different investment institutions.
IPOs can contain high risk for individual investors. So
before investing in an IPO, a person should acquire full knowledge about the
company, its whereabouts. The investor should have full acquire his confidence in the company before investing its hard earned
money. The capital market has many ups and downs and keeps on fluctuating. So
it is essential to verify before investing
a large amount in the IPOs.