Risks to keep an eye out for when investing in IPOs

Posted by GoodWill on January 13th, 2020

So you're looking to invest in an IPO. It's exciting, right? But the risks associated with investing in IPOs are not to be taken lightly. While some companies have been successful at raising money through IPOs over the years, others have failed miserably—and for good reason!

Why investing in an IPO is considered risky?

If you're going to invest in an IPO, it's important to know that the stock market is not a sure thing. The price of a company's shares may not be what you expect them to be at first—and this can lead to losing money on your investment.

Let’s go through some of the risks of investing in IPOs:

Introduction of new competition or technology

The introduction of new competition or technology can be a great way to disrupt an industry. This was the case with the music industry when iTunes came along, disrupting sales of physical CDs by offering easy access to songs at a fraction of the cost. It also happened in tech with the birth of Google and Facebook, two companies that offer free services in exchange for data about you and your friends.

New issue run-up

You will see the price of your shares rise after the IPO. However, there is no guarantee that this will continue to happen. The initial share price may be higher than what investors were hoping for and could even decline if there are other factors at play such as competition or new product introductions by competitors.

In addition, a lockup period will sometimes be used by companies during which they sell their initial public offering shares back to investors before they can trade freely on exchanges (this can last as long as six months).

Mispriced IPO

A mispriced IPO is one where the price of the company's stock is higher than it should be. This can happen when many investors are buying into an IPO, and they all want to sell their shares at once to get out before they lose money on the investment. The result? You may not know what you're buying until long after your purchase!

The consequences of buying a mispriced IPO can be catastrophic: if you've purchased shares at too high a price, then your investment will likely lose value over time as other investors realize that their return isn't worth holding onto them anymore (and sell). In addition, if everyone else starts selling as well—or even worse yet if no one wants any more shares—then you could find yourself with an undervalued company whose future isn't very bright either

The lockup periods

The lockup period is a time when the stock is not available for trading. This can be a few months or years, but it's intended to prevent insiders from selling their shares immediately after the IPO.

If you're investing in an IPO and your goal is to make some money, you might want to consider buying before the lockup period ends—the longer that lockup lasts, the more likely it will be that insiders will be able to sell their stock before your purchase price goes up enough that they'd have trouble unloading everything at once (or even at all).

Some stocks will make you rich, but some will make you cry.

Some IPOs will make you rich. Others will leave you crying in the corner with no one around to help clean up the blood stains on your favorite shirt. You should do your research before investing in an IPO because some companies' earnings may drop during their first few years as they learn how to run their business and grow profitably (or even just survive).

Where to buy the IPO

There are several ways to buy an IPO. You can do it directly through the GIGA app or you can use the best equity broker in India, Goodwill Wealth Management

If you don't have time to research the stock yourself or would rather not spend the money on research but still want a piece of it,

Conclusion          

So, now you have all the information you need to make an informed decision about investing in an IPO. If you are considering buying upcoming IPO 2022, then it is recommended that you do your research so that you can make sure that it is right for your needs. You can start IPO investing the right way with Goodwill, as they offer the lowest brokerage charges in India. Remember: if something sounds too good to be true, then it probably is!