Tuesday, August 6, 2019

Comparing Tax Saving Instruments u/s 80C – ELSS (Equity Linked Saving Schemes) Vs PPF (Public Provident Fund).

The Public Provident Fund (PPF) and equity-linked saving schemes (ELSS) are popular investment options that both qualify for income tax deductions. A deduction reduces your overall tax liability. Contributions up to Rs. 1.5 lakh a year qualify for tax deduction under Section 80C. Financial planners say that when it comes to investments in the PPF and ELSS mutual funds, investors should look at these investments not just from a tax-saving perspective but one that will help achieve their financial goals. ELSS mutual funds invest in equity shares of companies across sectors and market capitalization and have a three-year lock-in. 

An ELSS mutual fund is quite the same as a diversified equity fund, other than tax deduction benefits and the three-year lock-in. ELSS investments come with a lock-in period of three years, which is lowest among Section 80C investments. Investors should understand ELSS mutual funds are equity market-linked products.

Comparing Tax Saving Instruments

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1) The PPF is a 15-year government-backed savings option offered through banks and post offices. Thereafter, it can extended further in batches of five years. 

2) The interest rate on the PPF is revised every quarter and is benchmarked to yields on government securities. Currently, the PPF fetches an interest rate of 8%. Whereas in case of ELSS return is on an average 14 – 15%. 

3) In the PPF, you can maximize your returns by investing early in the financial year so that your deposits can earn interest for the entire year. 

4) The minimum amount that must be deposited in a PPF account in a financial year is Rs. 500 and the maximum allowed is Rs. 1.5 lakh. 

5) Premature closure of a PPF account is allowed only under specific conditions such as expenditure towards medical treatment. For this, a PPF account must have completed at least five financial years. 

6) Apart from income tax benefits, the ELSS is suitable for conservative investors who are looking at long-term financial goals like a child’s education or retirement, say financial planners. 

7) ELSS or tax-saving mutual schemes have a three-year lock-in period. You can partially or fully redeem your ELSS or tax saving mutual fund investments after three years. 

8) Financial planners suggest investors to opt for systematic investment plans (SIPs) in tax saving mutual funds to help spread their spread their investments throughout the year. 

9) The lock-in of three years also applies to SIPs. In other words, every SIP installment in a ELSS fund is subject to a three-year lock-in. 

10) Long term capital gains from equity mutual funds, including ELSS funds, above Rs. 1 lakh will be taxed at 10%. ELSS funds come with both growth and dividend options. It is suggested that investors should go for the growth option and not for the dividend option.

Comparing Tax Saving Instruments u/s 80C – ELSS

Comparing Tax Saving Instruments

We suggest the following funds for the ELSS investments:

Comparing Tax Saving Instruments

About Nidhi Broking Services:

Nidhi Broking Services is one of Mutual Fund Consultant in Thane. We offer services like NRI Investments, Equity Trading, IPO, Debentures, Mutual Funds, etc. 

Talk to us On 022 - 2530 3690 / 022 - 2530 1134 Or Whatsapp us on +91 70391 78941 Or Email us at info@nidhibroking.com 

Happy to help!

Thursday, July 25, 2019

Mutual Funds Can Form the Backbone of Your Retirement Plan

Role of mutual funds in your retirement planning

If you are a Central Government employee, most of the financial aspects of your retirement are already sorted by the government. But for those of you who are working in the private sector or are self-employed, retirement planning is essential. A mutual fund is one of the few investment avenues that can beat inflation it is imperative that you make mutual funds the centerpiece of your retirement planning.

In simple terms, a mutual fund pools money from different investors and then invests that money in various equity stocks, debt and money market instruments.  In the long run, mutual funds offer excellent returns and help build a corpus for your post-retirement needs.

If you have an investment horizon of at least 20 to 30 years and want to make mutual funds the start of your retirement plan, then systematic investment plan (SIP) will help you accumulate and compound wealth in an affordable manner.

Mutual Funds Can Form the Backbone of Your Retirement Plan

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Systematic Investment Plan (SIP) for Retirement

Systematic Investment Planning, better known as SIP, is a systematic approach to invest money in mutual funds. Under SIP, you invest a fixed amount in the fund of your choice every month. There is no upper limit to investing via SIP, but it is desirable to fix an amount which you can afford easily every month. In addition to instilling financial discipline, SIP helps you learn money management skills, which help further with the planning your retirement.

Let us elaborate with an example. Suppose you are 30 years old and you start a monthly SIP of Rs. 5,000/-. Assuming that the returns on your investment are 15% p.a. (which is a standard rate for most mutual funds) and you continue the SIP for 30 years. By the time you are 60 years old, you will have a corpus of Rs. 3.46 crores approximately. Very few other investment avenues offer you such returns with moderate risk.

Using the SIP route to plan your retirement fund is an excellent approach as it offers you several benefits like:  

  • You can invest as much amount that you are comfortable with as there is no minimum requirement for investment in SIP.

  • You can switch between equity and debt instruments with the help of a systematic transfer plan. This helps you reduce your risk exposure as you gradually age.

  • Through the ELSS route, you can save on your income tax liabilities every year as the contribution to ELSS is tax deductible under Sec 80C of the Income Tax Act.

Mutual Funds Can Form the Backbone of Your Retirement PlanMutual Funds Can Form the Backbone of Your Retirement Plan

About Nidhi Broking Services:

Nidhi Broking Services is one of Leading Mutual Fund Consultants Thane, Mumbai. We offer services like NRI Investments, Equity Trading, IPO, Debentures, Mutual Funds, etc. 

Talk to us On 022 - 2530 3690 / 022 - 2530 1134 Or Whatsapp us on +91 70391 78941 Or Email us at info@nidhibroking.com 

Happy to help!

Monday, July 22, 2019

Overview of MF Industry & Growth Prospects

Phase One: 1964-1987 (Establishment of UTI)

The mutual fund industry witnessed its launch with the formation of UTI in 1963. It reported Asset under Management (AUM) of 6700 crores at the end 1988.

Phase Two: 1987-1993 (Entry of Public Sector Funds)

SBI Mutual Fund was the first 'non-UTI' mutual fund established (June 1987) & other public sector banks followed with their own fund houses. 

At the end of 1993, AUM of the sector was Rs47, 004 crores. 

This phase holds immense importance in the history of mutual funds as it also brought the industry under a formal regulatory framework through The Securities and Exchange Board of India (SEBI).

Overview of MF Industry & Growth Prospects

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Phase Three: 1993-January 2003 (Entry of Private Sector Funds)

The impact of economic liberalization initiatives introduced in 1991 to expand trade and offer customers more choices cascaded to the mutual fund industry as well. The year 1993 marked the entry of private sector funds to bring transparency in the operations, introduce innovative products and provide superior customer services. 

The erstwhile Kothari Pioneer (now merged with Franklin Templeton MF) was the first private sector mutual fund registered in July 1993. About 11 private companies, along with many foreign sponsors set up their shops by the end of 1994-95. 

In 1995, Association of Mutual Funds in India (AMFI) was incorporated with an aim to act as a chief governing body of all Asset Management Companies (AMC), and promote ethical and professional code of conduct in the mutual fund sector. 

As at the end of January 2003, there were 33 MFs with total AUM of Rs 1, 21,805 crores, out of which UTI alone had AUM of Rs 44,541 crores.

Phase Four: February 2003-till date

2003 to 2008 saw a phase of consolidation of Mutual Fund industry with numerous mergers and acquisitions.

Toward the end of 2008, the securities market of India, much like the rest of the world, tumbled. Owing to the global economic crisis in 2009 the growth of the industry remained dismissal between 2010-2013.

In 2012, in order to bring a fresh breath of air in the industry, increase investor confidence and help it recover, SEBI announced a series of’re-energising' measures. The positive impact of these measures was also seen when industry's AUM crossed Rs. 10 trillion for the first time in May 2014 and registered a fivefold jump in AUM in 2016 since 2007.

The Present

Mutual fund investment still accounts for only 7% of total investments by individual investors in India and AUM: GDP ratio is a mere 11%, (In contrast the size of MF industry in USA is $20 trillion and growing which is same as it's GDP (i.e. 100% of GDP), indicating MF industry in India still has the potential to grow 5-7 fold), an indication of the tremendous untapped potential.

Technology is enhancing the growth of mutual funds in the form of paperless transactions (for eg. e-KYC, BSE Star MF, NSE NMFII, digital wallets).

The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders.

AMFI was incorporated in 1995, as a non-profit organisation. AMFI is the association of SEBI registered mutual funds in India which are managed by registered Asset Management Companies. As of now, all the 44 Asset Management Companies that are registered with SEBI are its members. Assets under Management (AUM) as on May 31, 2019 has crossed a landmark of 25 Lakh crore and almost touched a new high of 26 Lakh crore. AUM as on 31-May-2019 stood at Rs. 25, 93,560 crore.

About Nidhi Broking Services:

Nidhi Broking Services is one of Mutual Fund Consultant in Thane. We offer services like NRI Investments, Equity Trading, IPO, Debentures, Mutual Funds, etc. 

Talk to us On 022 - 2530 3690 / 022 - 2530 1134 Or Whatsapp us on +91 70391 78941 Or Email us at info@nidhibroking.com 

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Thursday, July 18, 2019

Sovereign Bond Announcement in Budget 2019 a Boon or Bane?

These bonds are fixed debt instruments issued by the government -- either in domestic or foreign currencies -- and it's as good as raising a loan in the international market. 

One of the most debated topics of the 2019 Union Budget presented by Finance Minister Nirmala Sitharaman was India's proposal to issue Sovereign Bonds in the global market in external currencies. 

As these bonds are fixed debt instruments issued by the government -- either in domestic or foreign currencies -- which is like raising a loan in the international market. Sovereign Bonds have an interest outlay in the form of coupon payments where the principle amount is paid at maturity. 

Although the step would integrate the Indian economy in global markets, it is debated that there is high risk involved. The coupon interest is decided by three factors, India's credit profile'-- which at present is Baa2 stable as per Moody’s -- the country's internal and external risk factors like sudden shooting up of fiscal deficit, and volatility of exchange rates between rupees and the foreign currency.

Sovereign Bond Announcement in Budget 2019 a Boon or Bane? 

Credit : freepik.com

National wealth or national debt

The world's overall debt is estimated at $63 trillion as of 2017. This is because; more countries are borrowing to raise funds by issuing similar bonds. 

In 1921, one of America's greatest inventors, Thomas Edison, had written in a New York Times article, "Any time we wish to add to the national wealth, we are compelled to add to the national debt."

Sovereign Bond Announcement in Budget 2019 a Boon or Bane?

Coming back to India's move, the rational for the decision presented in the budget speech is India's lowest sovereign external debt-to-GDP ratio. 

"India's sovereign external debt to GDP is 5 percent. The Government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have beneficial impact on demand situation for the government securities in domestic market."


Investors who subscribe to these bonds include large banks, and several countries have been part of this "original sin". Meaning, a country cannot raise funds in its own currency in a foreign market, but has to borrow in dollars or Euros. Hence, smaller developing countries lack the capacity to issue these bonds on their own and seek aid from institutions like the World Bank which would have its own set of rules for borrowing. Moreover, as the US dollar is the resolve currency, it affects the market with greater implications.

What Experts Say

Other points of disagreement include uncertainty of sovereign rating, rupee depreciation, expansion of current account deficit etc. On the other hand, India could wait a little longer to issue domestic bonds instead of borrowing via sovereign bonds.

C Rangarajan, Former RBI governor raised concerns on the rationality of sovereign debt in foreign currency. He said that by-and-large, it is not a welcome move and must be based on a country's ability to repay the borrowed amount. He added that borrowing in foreign currencies may expose the economy to risks as the rupee's depreciation or current account deficit cannot be contained in the long run. 

On the other hand, this method will not be able to help the country meet its obligations by simply printing more domestic currency.

Rate of interest is low outsideRupee depreciation pose additional risk
Foreign market will discipline the governmentMajor economies were unable to meet its obligations in the past
India will be included in the global bond market attracting more funds and easing domestic markets for private playersSovereign Rating is uncertain in the long term
FRBM in place : macro atmosphere healthy for foreign scrutinyWhy go overseas when we can raise via rupee denominate bonds
Debt to GDP ratio is low : long term foreign borrowing will benefit when attached to investmentsStill current ac deficit country ; high future vulnerability if it shoots up; roll over becomes difficult
Dollar will be small part of total borrowingTemptation of cheap money attached to revenue

Rising fiscal costs

According to a recently article, "The bureaucrats pushing the idea right now to make up for tax revenue shortfalls would have retired by then, leaving it to the rest of the economy, especially future generations of taxpayers, to cope with the rising fiscal costs." The intention of a long term borrowing is associated with growth led by investment and not short term needs. Therefore, a long time horizon cannot ensure or hedge against exchange rate risks, which increase the burden in repayment at the time of maturity.

It could further reduce the efficiency of various monetary policies. Moreover, low inflation rate will have to be maintained consistently as per experts.

The impact of Foreign Exchange

Borrowing in international markets can reduce interest rates, but any change in foreign exchange (forex) can turn expensive. Countries like Mexico, Indonesia, Brazil and Russia have experienced massive pressure from international investors to repay debt. In one instance, Elliott Capital went on to seize Argentina's naval vessel to recover its dues.

Bank of America Merrill Lynch's Jayesh Mehta said, "Sovereign bond issuances (overseas) need to be done in a planned manner... The government should do it consistently for the next five years because then it will help create secondary market liquidity around the world." Supporters who second the proposal are of the view that foreign markets will discipline the government with integration in the global bonds market when Fiscal Responsibility and Budget Management (FRBM) rules are in place. With an advantage of lower interest rates abroad, the domestic market can be left for the private issuers.

Assistant professor at IIM Ranchi, Amarendu Nandy said, "In such a scenario, India's benchmark yield at around 7 percent and a relatively stable currency should help attract a sizeable amount of inflow into the domestic debt market from a diverse set of investors, and aid Indian sovereign bonds to get into global bond indices. The sovereign foreign currency borrowing rate could serve as a useful benchmark for external commercial borrowings as well."

Low Risk Debt

There are some who consider that sovereign bonds have evolved over the years. Bank for International Settlements mentioned in a research paper that the risk gaps of these bonds have narrowed. "We document that sovereign risk tends to be less when bonds are issued in local rather than foreign currency, but that the gap has narrowed considerably over time. We find that the gap narrows when foreign exchange reserves are higher, foreign borrowing is lower, banks hold more government debt, and global volatility is less. At the same time, we find no support for the view that debt in local currency is safer because of sovereigns' willingness to inflate away their local debt." Nonetheless, Ananth Narayan, Associate Professor of Finance at SP Jain Institute of Management and Research said, "India is among the few major countries globally to have never issued a sovereign bond. These sovereign issuances should be useful. They draw in foreign savings at a good rate for the country. They free up domestic savings to be channeled into productive private investments. They establish a benchmark that helps price discovery for other corporate tapping overseas credit markets.”

On the other hand, Chief Economic Adviser Krishnamurthy Subramanian believes it's a "once in a generation opportunity" to issue sovereign bonds to help boost national wealth.

While the move is expected to ease the burden on Indian institutions, there are economies that have seen a bitter past in the global bond market.  It remains to be seen whether history will be created or repeated in future.

About Nidhi Broking Services:

Nidhi Broking Services Provide Best Investment Managers Thane, Mumbai and BSE Registered Equity And Stock Trading Services in Thane, Mumbai. We Also Offer Services Like NRI Investments, Equity Trading, IPO, Debentures, Mutual Funds, Etc. 

Talk to us On 022 - 2530 3690 / 022 - 2530 1134 Or Whatsapp us on +91 70391 78941 Or Email us at info@nidhibroking.com 

Happy to help!

Monday, July 15, 2019

All You Need to Know About IPOs

What is an IPO?

Initial Public Offering (IPO) is the process by which a company issues its share to the public for the first time. It is a route adopted by the promoters of companies to receive funds (capital) from the (primary) market to meet the business purposes. Upon the conclusion of IPO process, shares are listed on the stock exchange(s). Once listed, shares can be traded in the open market.

The process of raising the capital through primary market is regulated by the Securities and Exchange Board of India (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2018. Some of the key steps in launching an IPO include:

All You Need to Know About IPOs

1. Filing of ‘Draft Offer Document’ with SEBI –

i. Once a company decides to come out with an IPO, it needs to prepare an elaborate offer document. This document contains information about the company such as its business and operations, promoters and management, financials, purpose(s) for which IPO proceeding will be used, etc. However, it does not contain date of opening and closing of the issue. This document is filed by the SEBI registered merchant banker, appointed by the company with SEBI for its vetting. 

ii. Regarding the price of the shares, there are two options available to company. It may either decide the price of the shares itself or let the market forces decide the final price of issue. The first approach is known as ‘Fixed Price Issue’ and second is known as ‘Book Building Process’. 

iii. In the book building process, the merchant banker decides a floor price (or minimum price) and cap price (or maximum price). The interested public may offer / bid for the shares of the company as per the given price band. 

iv. The ‘Draft Offer Document’ is known as ‘Draft Prospectus’ in case of a fixed price issue. In a book building issue, it is known as ‘Draft Red Herring Prospectus’ (DRHP). Nowadays, most of the companies do not fix the price of shares themselves; rather they adopt book building process, which is actually a demand and supply based price discovery mechanism. 

2. SEBI reviews the DRHP (or Draft Prospectus) and communicates its observation(s), if any to company. Company is required to provide required clarification / further information to SEBI and make required changes in the DRHP. 

3. After receiving SEBI’s clearance, company finalizes the dates of opening and closing of issue and mentions the same in the document. Now, the document is known as ‘Red Herring Prospectus’ (RHP) or Prospectus, as the case may be. The issuer company needs to file RHP / Prospectus with the concerned ‘Registrar of Companies’ (ROC). 

4. After filing of the RHP / Prospectus with ROC, the company puts the issue in the market; means invites public to invest in the shares of the company. The interested public / investors may apply for the shares through any registered stock broker or online. Many of the banks enable their customers to apply for the IPO through the net banking facility also. 

5. Once the issue closes, the company allots the shares to applicants. Successful applicants are issued shares in paper form or demat form, as per the option selected by them. If the IPO was through a book building process, the final issue price is decided by the company on the basis of bids (offers) received from different applicants. 

6. After allotment of shares, company files a ‘Final Prospectus’ with concerned ROC. After completion of certain formalities, the Stock Exchange(s) makes the shares available for trading on their platform.

Why do companies come out with an IPO?

Some of the major reasons for a company to come out with an IPO include:

Raising capital

Capital is the most basic element any business requires to grow. Scaling-up a business requires large amounts of investment in establishing or expanding manufacturing capabilities, research and development, new product development, geographic expansion, etc. IPO helps company to get the capital it is looking for, generally at lower cost than the borrowed funds.

Financial prudence

There are number of sources from where the business can start such as borrowing from banks, private loans and seed capital from venture capital firms. As the business grows, it makes financial sense to retire some of these debts. An IPO is one way to convert this debt to equity or an exit strategy for venture capital firms to recover their investment

Visibility and credibility

Getting listed on a stock exchange, post IPO gives visibility and lends credibility to the company. This facilitates access to new customers and markets thus contributing to the top line of the company.

What is an FPO?

Follow-on Public Offer (FPO) is issue of further shares to the public by a listed company. An FPO is made by company to raise funds for a special requirement like acquiring another company or to fuel its diversification, expansion or growth plans.

What is an OFS?

An Offer for Sale (OFS) is an offer to sell the shares by an existing shareholder of the company to the public. Therefore, it does not result in increase in the capital of the company. Only the shareholders change. This is a common route adopted by the government to divest or reduce its holdings in Public Sector Units. 

IPO as well as FPOs may be for fresh shares or existing shares.

What is a Rights Issue?

When a company offers fresh shares to its existing shareholders in proportion to their holding of old shares, it is known as Rights issue. Offer document of such issue is known as ‘Letter of Offer’.’ 

Composite Issue involves issue of fresh shares to public and rights issue by a listed company.

Things to look at before investing in a Public Issue

Offer Documents are published to enable prospective investors to take a decision on whether or not to apply for the issue. It contains detailed information about the company, its business, people, projects and future prospects. Generally, the offer documents are quite big, running into more than 100 pages, typically. While all the sections are important, there are few, mentioned below, which needs special attention from an investor’s point of view.

Risk factors

This is a commentary on the internal and external risks faced by the company. It details the industry landscape including the current competitors, prospective disruptors and future contenders. It also covers the regulatory and policy-related aspects that could affect the future of the company.

About the company

This section covers the details of about the company including its history, business operations, business model and strategy as well as its competitive strengths. It also talks about the promoters, management and board of directors of the company and their compensation as well as corporate structure, subsidiaries and related party transactions.

Financial information

The financial health of the company is a key factor in making an investment decision. This section reveals the company’s historical performance and includes the Balance Sheet and Profit & Loss Statement. Pay special attention to the company’s capital structure and debt levels to gauge its financial wellbeing and future prospects.

Legal issues and contingencies

This is a listing of all outstanding litigations and material developments related to the issuing company and its subsidiaries as well as the promoters of the group and their business interests. Any issue that jeopardizes the fundamentals of the company or risks continued operations is a red flag.

What do you need for investing in an IPO / FPO?

Applying for an IPO or FPO has two key pre-requisites:

1. Bank Account

Payment for all the public issues needs to be paid through an instrument ‘Application Supported by Blocked Amount’ (ASBA), which in turn requires you to have a bank account. You need to have sufficient balance in your bank account, sufficient to enable your bank to debit your account to extent of amount you have applied for.

2. Demat Account

You need to have a demat account to keep the shares once they are allotted to you. You need to mention details of your demat account (DP ID and Client ID) in the IPO application. As per recent amendment in Companies (Prospectus and Allotment of Securities) Rules, 2014, all the issues of unlisted public limited companies will be compulsorily in demat form. 

In case you do not have a demat account, you can open the same with any SEBI registered Depository Participant.

How to apply for an IPO?

1. Fill up the IPO form and submit it to any authorized stock broker or Syndicate bank. 

2. Submit online application through your bank or RTA’s website.

What care should be exercised while making online application in IPO?

  • Mention correct details of your demat account (DP ID and Client ID).

  • Specify the number of shares you want to apply.

  • Mention the price for your bid - In case of a book-building IPO, you need to mention the price (between floor price and cap price) at which you are willing to purchase the shares. Incase you are willing to pay the market determined price, you may select ‘Cut off’ price in the application.

  • Multiple bids: Investors are permitted to make up to three bids for an IPO. This allows you to hedge your risks and increase your chances of getting an allotment at the desired price. It is important to remember that permission is upto 3 multiple bids and not multiple applications.

  • Verify your order before final submission of the form.

  • Withdrawal of application: Applications can be withdrawn or cancelled at any time before the issue closes.

For retail / small investors, it is better to obtain professional advice before taking an investment decision.

Common reasons for rejection of an IPO application of an investor

Below are some common reasons for the rejection of an IPO application:-

  • Absence of or incorrect DP ID / Client ID on the application

  • Absence of or incorrect PAN on the application

  • Mismatch in the name of the applicant as per demat account and PAN card
  • Insufficient funds in the bank account

  • Multiple application by the same investor

  • Applying for a lower number of shares than the minimum requirement

  • Bids lesser than the floor price or more than the cap price

  • If application is in excess of Rs.2,00,000 and is applied in retail investor category

Will I get the shares for sure if I apply?

Applying for shares in IPO / public issue does not guarantee the allotment of shares. Whether you will get shares or not and how much, are dependent on two things – how much is the demand in the category you are applying and some luck. In case of over subscription (that is demand of shares being much more than the shares being offered by the issuer company), you may get shares less than what you apply for or may be nothing. The formula for allotment of shares is decided by the Registrar to the Issue, as per applicable guidelines.

How would I know that I have got the shares?

There are two ways. First you would get an allotment advice from the registrar to the issue, post allotment, mentioning the shares applied for and shares allotted, among other things. Most registrars now send email / SMS alerts also upon the completion of allotment process. Another way is to check balance in your demat account, on the next day of allotment of shares by the company.

Will I get money back if I do not get any share?

One major benefit of ASBA facility is that your application money remains in your bank account, till you get the shares. In case, you are not allotted any share or get lesser number of shares than you have paid for, the money to that extent is released by the banker.

Benefits of investing in IPOs

Get a head start

IPOs provide investors with an opportunity to become early shareholders in good companies that demonstrate a potential for growth. The stock price of companies with strong fundamentals will rise in future thus making your investment worth your time and money.

SEBI provisions permit issuer to offer a discount which typically could be up to 5% on the floor price. For retail investors, this offers a direct advantage to get shares at a lower price.

Level playing field

An IPO is one of the few investment avenues that offer a level playing field for investors of all shapes and sizes. The pre-determined price or a price band for bidding applies to all investors alike. Additionally, unlike the secondary market, the information about the company that is available to the public is the same as it is for institutional investors, making it the best opportunity to get in.

Best practices for investing in IPOs

Do not borrow funds to invest in an IPO

While IPOs sound lucrative as a short-term investment opportunity, it is not advisable to borrow money to invest in an IPO. At the end of the day, an IPO is an equity investment, so all market-related risks also apply to it. IPOs do not guarantee any returns or even an assurance about the post-listing trading price. Unless if you have sufficient funds to invest in an IPO, it is advisable to avoid investing in IPOs through borrowed funds.

IPO strategy and investment horizon

Your strategy to invest in an IPO needs to be based on your investment objective and time horizon. ‘Flipping’ is a strategy that involves selling the allotted shares on the listing day itself to profit from listing of shares at a higher price. However, if share gets listed lower than the bid price, investors would have to bear the losses if he sells. It is best to decide in advance the level / time, when you must exit from the share.funds.

No investment on the basis of tips / insider information

Never ever base your investment decision on ‘tips’ from friends or hearsay recommendations by your brokers. While, it is OK to seek professional help from qualified advisors or experts, you must do your homework. Ultimately, it’s your money. Another thing to avoid is investing on the basis of ‘insider information’. Insider information is information which is generally not available publically. Any transaction undertaken on the basis of such information is illegal.

All that glitters is not gold

The IPO process involves a lot of promotions using advertisements as well as opinions shared by so-called market experts and thought leaders. While it is not possible to ignore all the noise; as an investor, it is your responsibility to conduct your own research and separate the substance from the noise before taking a decision.

Myths about IPOs

All IPOs offer high returns

There is no guarantee that investing through IPO would essentially result in gains. It is possible that issue may open at a discount upon its listing or it may not attain the price level expected by you for the expected time horizon.

A company floating an IPO must be financially strong

Though there are several SEBI specified norms pertaining to the financial performance of companies intending to go public, there are numerous technicalities involved. Companies usually float an IPO after reaching a certain maturity in business and raise funds for expansion and growth. However, some companies may do it at a very early stage or even to stay afloat. 

Always look at the offer document to understand the purpose of the IPO. If it is to pay off debt or to meet the capital shortfall in ongoing operations, it is going to put money at relatively more risk.

If an IPO is oversubscribed, it must be good

Oversubscription is often touted as a key parameter of an IPO’s prospects by those who are selling it. As with any investment, stay away from the herd mentality and rely on your own homework and professional advice.

Some terminology used:-

1. Abridged Prospectus is an abridged version of offer document in public issue and is issued along with the application form of a public issue. It contains all the salient features of the prospectus. 

2. Prospectus is an offer document in case of a public issue which has all relevant details including price and number of shares. This document is registered with ROC before the issue opens in case of a fixed price issue and after the closure of the issue in case of a book built issue. 

3. Shelf prospectus is a prospectus which enables an issuer to make a series of issues with in a period of 1 year without the need of filing a fresh prospectus every time. This facility is available to public sector banks, schedule banks and public financial institutions. 

4. Greenshoe option is a price stabilising mechanism in which the underwriters are permitted to buy additional shares at the offer price subject to a cap of 15% of the issue size. These shares are used to stabilise the price in case of over-allotment.

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About Nidhi Broking Services:

Nidhi Broking Services Provide Best IPO Investment Services and BSE Registered Equity And Stock Trading Services in Thane, Mumbai. We Also Offer Services Like NRI Investments, Equity Trading, IPO, Debentures, Mutual Funds, Etc. 

Talk to us On 022 - 2530 3690 / 022 - 2530 1134 Or Whatsapp us on +91 70391 78941 Or Email us at info@nidhibroking.com 

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