IPOs – The ideal investment vehicle for beginners in the stock market

By Mr. Amarjeet Maurya – AVP – Mid Caps, Angel One Ltd

Starting an investment journey could be challenging as well as fulfilling for beginners for a variety of reasons. Stock markets often fascinate investors’ attention because of extraordinary returns and stories of highly successful investments. However, beginners also understand the risks associated with stock market investments. Rather than ‘burning out’ an initial corpus for the sake of gaining experience in the stock market, it is crucial to take account of ideal investment vehicles such as IPOs.

There are various reasons why IPOs are considered the best way to begin the investment journey of an individual. Even though a beginner should not adopt a reckless approach whilst putting money in IPOs, these investment vehicles could be still vastly profitable if an informed decision is made.

IPOs are a great way to start the investment journey

As explained before, beginners can use IPOs as a way to start their investment journey. However, making an informed decision whilst choosing to invest in an IPO is essential. A beginner should take account of good corporate governance, long-term outlook and quality of management of the company while choosing the IPO of any company. Besides this, some red flags such as controversies or aggressive accounting processes should be considered whilst taking a decision related to the investment if adopted by a company.

The number of IPOs is increasing

In the current year (2021), Indian investors have seen many IPOs, including start-ups and a few established brands. This increased number gives a chance to beginners to choose from a wide array of options, including diversified sectors and capitalisation. Hence, based on the risk appetite and investment goals, the investor could put money in one or more IPOs available.

IPOs have helped investors in gaining significant capital appreciation

In the recent past, there have been IPOs that have helped beginners in gaining significant capital appreciation through bumper listings. Some of the examples of such IPOs include the recently listed Nykaa Ecommerce Ventures (providing 80% premium), Nazara Technologies (around 80% premium), and Sona BLW (going 96% over issue price within months of listing). These examples only encourage beginners to consider IPOs as an excellent way to enter the market.

The chances of ‘burning out’ investment corpus remains low for beginners

Extinguishing an entire corpus due to reckless and uninformed investing processes is a common feature of beginners’ investment journey. Beginners can take account of advice from friends, families, and even some unsolicited sources such as YouTube channels and might end up investing a considerable amount with the hope of making quick money. Putting money in F&O and penny stocks include high risk and can financially damage an individual. Hence, IPOs remain a comparatively safer option (than the ones mentioned) as the probability of extinguishing the entire investment is relatively low.

A beginner can make use of market indicators and forums to evaluate expected profitability

There are different market indicators such as grey market premium, discussions on forums, and experts’ advice that could be used to make an informed decision. Beginners can follow these forums that would help enrich their knowledge and experience of investing in the stock market. These forums would also assist them in making a decision related to an IPO.

IPOs provide an opportunity to get associated with start-ups as well as established names

Beginners should understand that IPOs are the initial offering of a company’s stock. It can be offered by a start-up or an established brand in the market. Hence, to be associated with financial growth, IPOs provide an excellent opportunity to investors. Therefore, if the market indicators are optimistic about a company’s expected growth, IPOs could be a perfect way to get associated with the organisation.

Summing up

An investor is nervous, excited, and doubtful during the early days of investment. A beginner must choose the best investment vehicles to ensure that the investment journey in the stock markets remains profitable. IPOs could be one of the best ways through which an investor could receive long-term returns and start the investment journey on a promising mode, provided a reasonable amount of time is spent in carrying out fundamental research and accordingly taking an informed decision.