Information about IPOs, FPOs, OFSs and SIPs Types.
In previous blog we had discussed about different types of stocks in detail. Hope that was informative.so, this blog will be about IPOs ,FPOs, OFSs and SIPs Types.
What is IPO?
An initial public offering (IPO) is process of offering the shares of a private corporation to the public.an IPO allows the company to raise capital from public by offering the shares to investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors. Meanwhile, it also allows public investors to participate in the offering. IPOs provide companies with an opportunity to obtain capital by offering shares through the primary market. Meanwhile, it also allows public investors to participate in the offering. It could be a new company or an old company which decides to be listed on an exchange and hence makes public. Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising their own capital.
How to invest in IPOs.
the applicant must have the following:
- Demat account
- Trading account
- Mobile number linked to the bank account
- UPI ID
Log into trading app or mobile application of the broker and go to ongoing IPO section. Select investor type and IPO to apply for. Enter number of shares and bid price. UPI id must be entered as well.
ADVANTAGES OF IPOs.
· Marketability of share
· Source of cash
· Increased profile- company and directors
· Chance to make acquisitions for paper
· Management incentives.
· Better access to capital.
· Gain access to funds
· Low chances of price manipulations
DISADVANTAGES OF IPOs.
· Requirement to disclose financial and business information.
· Meaningful time, effort, and attention required of senior management.
· Loss of control and stronger agency problems due to new shareholders.
· Significant legal, accounting and marketing costs, many of which are ongoing.
Current IPO
PARAS DEFEANCE IPO
Issue Open 21–23 Sep
Price Band : ₹ 175/-
Bid Lot Size : 85 Eq.
Amount : ₹ 14,875/-
Allotment 29/9/21
Listing 1/10/21
WHAT IS FOLLOW-ON PUBLIC OFFER (FPO)?
A follow-on public offer (FPO) is an issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of additional shares made by an already publicly listed company.
Follow-on offerings are also known as secondary offerings. An at-the-market offering (ATM) is a type of FPO by which a company can offer secondary public shares on any given day, usually depending on the prevailing market price, to raise capital.
HOW DOES FPOS WORK?
Public companies can also take advantage of an FPO through an offer document. FPOs and IPOs are two different concepts don’t get confused between these two, the initial public offering of equity to the public. FPOs are additional issues made after a company is established on an exchange.
EXAMPLES OF FOLLOW-ON PUBLIC OFFERING.
In 2005, Google issued a follow-on offering of 14,159,265 shares of Class A common stock, which were sold at $295.00 per share.
In 2013, Facebook announced they would offer an additional 27,004,761 new shares. 42,995,239 existing shares were also being offered by shareholders, including 41,350,000 shares offered by its chief executive, Mark Zuckerberg. They intended to use the proceeds from the selling of shares to finance corporate operations and increase working capital.
Tesla also issued new shares several times following its initial public offering. They issued 5,300,000 new shares of common stock in 2011 and 4,344,930 new common shares in 2012. At the beginning of 2020, they announced an offering valued at $2 billion worth of stock. In December 2020, they announced another offering of $5 billion worth of stock.
TYPES OF FPOs.
1. Diluted
Diluted follow-on offerings happen when a public company issues additional new shares for individuals to invest in. The more shares they issue, the larger the denominator in the earnings per share becomes, which reduces the portion of earnings allocated to existing shareholders.
2. Non-Diluted
Non-diluted follow-on offerings are when existing investors of the stock sell their shares to the public. Since no new shares are issued in the market, and the shares offered for sale are already existing, the earnings per share remain unchanged.
Once the shares are sold, the proceeds go back to the original shareholders of the stock. Non-diluted offerings are also referred to as secondary market offerings.
What is offer for sale (OFS)?
Offer is when the owner of a company sells their shares to the public.it is completely transparent process which takes place in the stock market. Only the top 200 companies can initiate an 0FS.
Here is the example,
You want to buy a watch. You have two options. You can either buy it from a random nearby shop or directly from a TITAN showroom. Both are equally accessible to you. Also, there is absolutely no difference in quality.
But there’s a catch. TITAN showroom is conducting a lucky draw. So, there’s a chance that you may get a 5% discount. Will you take a chance and buy from TITAN or will you prefer the nearby shop?
In this example, TITAN is doing an offer for sale and your nearby shop is the stock market. Investing in an OFS is buying shares directly from its promoters. You can also buy the same stock from the market. But in OFS, shares are offered at a discount to the market price.
OFS is extremely popular among Public Sector Units (PSUs). It helps government meet its disinvestment targets. An OFS by PSUs is generally provided at a discount to retail investors.
WHAT IS SYSTEMATIC INVESTMENT PLAN (SIP)?
A systematic investment plan (SIP) is a way by which investors can save their savings regularly.it is offered by mutual funds. It is just like a recurring deposit with the bank where investor put in a small amount every month. A systematic investment plan involves investing a consistent sum of money regularly, and usually into the same security. A SIP generally pulls automatic withdrawals from the funding account and may require extended commitments from the investor. SIPs operate on the principle of dollar-cost averaging. Most brokerages and mutual fund companies offer SIPs.
HOW SIPs WORKS?
A SIP is just a way to invest systematically. Instead of buying units of mutual fund schemes, you can invest in shares. Once you decide how much money you’d like to invest, your brokerage firm places a ‘buy’ order for a predetermined number of shares worth your monthly commitment. Brokerage houses offer daily, weekly and monthly Sips. You can choose to buy more than one company’s shares via stock SIPs.
Some brokerages allow you to specify the maximum buy price. You can define the number of instalments and keep your broking account funded to that extent. Or you could just give a mandate to debit funds from your account to buy shares.
WHY TO INVEST IN SIPs?
· You can start investment as low as Rs.500.
· There are no charges to invest in SIP.
· Compounding interest benefits.
· It helps in managing market volatility.
· It disciplines your financial decision.
7 DIFFERENT TYPES OF SIPS.
1. Regular SIP
2. Top-up SIP
3. Flexible SIP
4. Perpetual SIP
5. Trigger SIP
6. SIP with insurance
7. Multi SIP
1. REGULAR SIP
A regular SIP is the simplest type of investment plan. Under this SIP, the investor invests a fixed amount at regular intervals. The SIP frequency can be monthly, bi-monthly, quarterly or half-yearly. Furthermore, there are daily and weekly SIPs as well. However, these are not highly recommended ones. While choosing a SIP, investors can mention the SIP duration, instalment amount and frequency. In a regular SIP, one cannot change the investment amount during the tenure of the investment.
2. TOP-UP SIP
Top-up SIP or Step-up SIP allows investors to increase their SIP amount periodically. Many asset management companies have a provision to step up SIPs. Choosing a step-up SIP adds more flexibility to the recurring contributions and helps investors in parking bigger amounts. In other words, when an investor’s income increases, they can simultaneously increase their SIP contributions to save higher amounts. This will help them create their investment corpus faster because of the power of compounding. Therefore, it is advisable to choose SIP plans that offer this facility to top up the investments.
3. FLEXIBLE SIP
A Flexi SIP allows you to vary the amount of your investments every month. If you do not want to invest a fixed amount, and prefer more control over your investments, you can set up a Flexi SIP. You will have to specify a default amount for your investments. Seven days prior to your SIP’s date, you will have the option to change the SIP amount for that month. If you do not change the SIP amount, the default amount selected by you will be invested.
4. PERPETUAL SIP
Perpetual SIPs do not have any end dates. If you want to stop a perpetual SIP, you would have to fill an SIP closure form and submit it to your Asset Management Company (AMC). When you opt for perpetual SIPs, you do not need to renew your SIPs now and then. You can invest as long as you wish.
For e.g., when you opt for a fixed-tenure SIP with an investment horizon of, let us say, 10 years, your AMC will stop debiting your bank account for the SIP after this period is over. If you wish for it to continue, you would have to intimate the AMC to continue with the SIP and decide on tenure extension. On the other hand, a perpetual SIP will continue until you intimate the AMC to stop. This is the basic difference between a fixed-tenure and a perpetual SIP.
5. TRIGGER SIP
Trigger SIP facility in mutual fund allows investors to redeem part or full amount or switch investment to another scheme automatically when it reaches a pre-defined trigger point. A trigger can be set for both upside or downside events. Thus, the facility helps investors to reduce market risk to an extent.
6. SIP WITH INSURANCE.
A few mutual fund houses are offering free optional in-built insurance cover to their SIP investors based on their SIP contributions and tenure. The cost of insurance is borne by the fund house. The objective is to encourage their SIP investors to continue their SIP contributions as well as stay invested for the long term. The add-on life cover would help investors in achieving their crucial financial goals in the event of the unfortunate death of the investor. The insurance cover usually starts with the commencement of the SIP without any requirement for medical tests.
7. MULTI SIP
A multi-SIP allows investors to start investing in multiple schemes of a fund house through a single instrument. This helps investors in diversifying their investment portfolio. Furthermore, it also reduces the amount of paperwork. Investors can give a single form and payment instruction to start their SIP plans.
THANKYOU FOR READING…. I HOPE YOU LIKE THIS BLOG.
In next blog I will discuss about mutual funds and types of trading in detail.
Follow my BLOG for more information about share market.😊😁
