Risk factors to consider before applying for an IPO

IPO investment is always alluring as the chance of earning high returns in a rising market is huge. Many big investors in the past have made humongous money by applying for the right IPO in quantities of shares. These IPOs bring in opportunities to be a shareholder of a company and receive dividends in future. As the IPO investment brings in rewarding returns, they also have risk factors. These risk factors need to be known beforehand to have an entire understanding of where and how you are investing. This will bring in transparency and an overall review of what an IPO basically is. 

Risk factors to consider before applying for an IPO:

1. No guarantee of getting the shares applied for

There’s no surety that you will get the allotment is shares applied in the IPO. You can apply for lots, but the acceptance is purely computer-based. If the IPO is oversubscribed, then there comes the lottery system. Here, the computer is used to randomly select the investors and offer them the application. Oversubscription of IPO is usually seen. This is because the IPO price of a share of a valued company is less, and when it is listed, the possibility of the share price rising is always there. 

2. Money locking 

The money is locked when you apply for the IPO till your name is not selected. If your name is not selected, the lock will be released, and you can use the amount. Hence, if you do not have access to money, do not apply for the IPO. If you have funds that will not be using for a fortnight, then applying for the IPO usually is beneficial.

3. Price influence when listed

The shares when listed on the exchange can rise or even fall. Markets are influenced by many movements. These can be external and internal too. Therefore, if you have the holding capacity for a longer duration, you can apply for the IPO. If you purely want to earn through the IPO, there are chances that the listing price can go down. This has happened for many reputed companies too. Though these companies in the later times have risen and given fantastic returns. 

Applying in the market to earn a profit is a good way to earn extra income other than your normal method of earning. Dividend income is also a passive way to earn more money. Investing helps to gain in the long term, and hence all should start investing and prepare for retirement. 

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