Tips and Strategies for IPO Investment

10 Tips and Strategies for IPO Investment


Investing in Initial Public Offerings (IPOs) can yield substantial gains. Many IPOs have showcased impressive returns on listing and over time. However, some have underperformed. To maximize success, identifying promising IPOs is crucial.

Here are 10 tips and strategies for informed IPO investments. IPOs can be lucrative, but success is linked to selecting companies with sound valuations and fundamentals poised for growth. IPOs enable private firms to gather public funds for expansion, infrastructure, and debt repayment. Historical data aids accurate valuation. Recent instances like Burger King and Mrs. Bector’s IPOs boasted high gains, yet not all IPOs assure profits. Comprehensive research and strategy are pivotal for smart IPO investments.

You can gain good profits with the IPO investment. Many IPOs provide excellent returns on the listing and later. However, many IPOs underperform and lead to considerable losses to investors. If you wish to get the maximum profit, investing in a promising IPO is essential.

IPOs can be lucrative, but success depends on selecting the right company and its sound valuation and growth. With IPOs, private firms gather funds from the public for their expansion, infrastructure, or paying off debt. You can get an accurate valuation from the historical data.

Recently, IPOs of companies like Burger King and Mrs. Bector have shown immense gain, but only some companies show such profit. Comprehensive research and adopting the right strategies are essential. Here, we have listed 10 tips and strategies for IPO investment. 

Meaning of IPO

The full form of IPO is “Initial public offering,” when the private company offers the shares to the public for the first time to raise funds. After the IPO, the company shares are listed on the stock exchange, and traders can buy them.

However, choosing the right IPO to make a maximum profit is essential, and this can be done with IPO investment tips and strategy. Let’s have a look at the IPO investment strategy and its benefits.

Also read: Best Investment Strategies For Long-Term Growth

10 Tips and Strategies for Investing in IPO

IPOs are discounted shares to the investors to attract more and more investors from the public. This is the reason that IPOs usually yield high returns. However, blindly trusting an IPO can also lead to losses. You must follow the IPO investment tips and strategy discussed below before investing in an IPO.

1. Conduct thorough Market Research

Market research can be challenging because the huge market statistics must be adequately analyzed. Furthermore, many companies provide false statistics with inaccurate data and conceal the limitations of their business.

You must research past press releases, competitor analysis, and market demand. The IPO prospectus (RHP) is the best platform to start your research because SEBI approves it. Conducting the proper research is the essential IPO investment strategy that can help you identify underperforming companies and plan your investment to earn high profits.

2. Analyse Draft Red Herring Prospectus (DRHP)

The company submits the Draft Red Herring Prospectus to SEBI to get approval for IPO. After the approval company gets the listing, these IPO investment tips and strategies can help you gain insight into the company’s growth before investing in the IPO. Investors must refer to the SEBI official website to analyze the DRHPs. The draft is available on the company website, stock exchange portal, newspaper, and financial magazine. The Draft Red Herring Prospectus includes:

  • Company History
  • Information of the Promoter
  • The objective behind issuing IPO
  • Associated Risks
  • Plans for investing the raised capital

3. Understand where Your Money is Going

There are 2 primary reasons that companies raise money for Growth and Debt repayment. Many companies invest the raised funds in expanding the business, upgrading the inventory, research, and Development. However, companies also raise funds to pay off their debts. However, such investments are not progressive, so investing in them is not a good idea. Moreover, the company’s profit is directly proportional to the investors’ profit.  The IPO investment strategy for knowing the purpose of investing money is essential.

Companies often use the funds for both purposes, i.e., business expansion and debt repayment. In such a case, you must analyze the business’s financial status and understand the effects of debt repayment on the business’s cash flow.

4. Analyse thoroughly the Orofile of Management and Promoter

Make sure that your money is in safe hands. To ensure this, you must adequately check the management team of the company, their past accomplishments, and the promoter or owner’s reputation. It helps you to analyze how stable the company is and the efficiency of the management staff. You can get all the information about the company on its official website.

5. Understand Your Investment objectives and Risk Appetite

You must understand the financial goals you want to meet from the investment. Check your financial capabilities and risk appetite and invest accordingly. If you have a low-risk appetite, you must only invest in those IPOs that have a good potential for growth

6. Monitor the Lock-in Period

Under the lock-in period, the investors are bound to hold their shares for a fixed period. The investor signs this kind of agreement before purchasing an IPO. If the investors sell their shares immediately after the lock-in period ends, they need more confidence in the business. Also, insiders often know the company’s true business and opt out before getting into the losses. This IPO investment strategy helps you get into the company trap.

7. Compare other Businesses of the Same Niche

You must compare the business with its competitors to determine how much the company is growing. The comparison of financial ratios like Price-to-earning ratio, Price-to-sale ratio, Debt to Equity ratio, etc., helps you get a proper insight into the company value in the market. It also enables the investor to compare the stock’s market demand and profitability. It helps you to assess if the stock is undervalued or overvalued.

8. Diversify Your Portfolio

For beginners in the stock market, investing in multiple IPOs to diversify your investment is recommended. The low-risk tolerance capacity is also one of the reasons to diversify your investment. It further helps you minimize your risk even if the stock underperforms, and other investments can compensate for the loss. However, don’t over-diversify your investment. Otherwise, it can hinder your return.

9. Plan an Exit Strategy

Planning the exit strategy is essential for short-term investors. You must decide at what level you have to sell your share and get a profit. Usually, good company IPOs rise high on listing in the first few months and then drop down within the next few months. You must decide in advance if you want to exit on starting days.

Similarly, deciding on the loss level is also essential because not all IPOs work well. So, booking profit and stopping losses at the correct time is essential.

10. Be Skeptical

IPOs are considered the safest investment, but it is not valid for every company. If a broker is recommending you for the IPO investment, be skeptical, he may be showing you the positive side only and hiding the company’s reality. When NHIs and institutional investors often refuse to invest in a particular IPO, the broker may convince you to invest in it to make sales. This IPO investment strategy is essential to safeguard yourself from the trap of brokers.


IPO is one of the best methods for companies to get huge funds, but you must check why the company needs capital. Companies often use their money to pay off their debts rather than grow further, which can lead to huge losses. You should research and analyze various aspects of the company to ensure a safe investment. The above-listed ipo investment tips and strategies are essential to make a profitable investment.

Tips and Strategies for IPO Investment – FAQs

What is the timing for trading in IPO in India?

Ans. IPO trading opens from 10:00 AM to 3:30 PM, whereas the pre-open trading session is also available from 9:00 AM to 9: 45 AM.

Where should I place orders for IPO?

Ans. You can order for IPO anywhere within the time limit, i.e., 10: AM of the issue date and 4:30 PM of the closing day.

What do you mean by Lock-in period?

Ans. The Lock-in period can be understood as the minimum period that shareholders need to hold on to the share, and they cannot sell off their shares in this time whether the shares are going into losses or not.

How to start IPO investment?

Ans. To start IPO investment, open a Dema account, a bank account, and a trading account to ensure the seamless flow of transactions. You must also keep in mind all the IPO investment strategies.

What should we not do while investing in an IPO?

Ans. Keep the main two things in mind before investing in IPO- Do not fall for hype in the market for a particular company, and Don’t fall for a brand that looks like they have excellent prospects. 


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