Several companies are coming up with their Initial Public Offers (IPOs), especially the start-ups like Zomato and Paytm. In these IPOs, people are taking extreme interest and are investing too.

However, last week, we saw a sharp decline in the share prices of Zomato and other start-ups that had launched their IPO.

This was a rather demoralizing outcome of the offering. While some people did say that the market is undergoing a correction and the downfall in the share prices was merely a result of this correction, I would beg to differ.

Some people, especially the new and naive investors, believe that IPOs are no less than a jackpot and they can become rich by strategically investing in IPOs. The great shark, Ashneer Gover, also took up a fight with a Kotak Mahindra employee when he couldn’t get funds enough to invest substantially in the Nykaa IPO.

In my opinion, and that of various other experts, IPOs can’t make anyone rich. Let us understand why I am saying so.

Can IPOs Make You Rich?

Let us get to the elephant in the room. IPOs do have the potential of making someone rich, however, it isn’t the case always. This is so because in most cases, especially for start-ups that often inflate their valuation, companies aren’t able to earn exponentially and this leads to erosion of wealth and downfall in share prices.

A real-life story is of Coal India. Coal India’s share’s value hasn’t changed over the nine years and though investors did receive higher than average annual dividends, the stagnancy didn’t compensate for the company’s under-performance.

Read Also: With New Unicorns And IPOs By Startups, Is India Actually Earning?

Which IPO To Invest In?

Now that we have decided that IPOs are risky and don’t guarantee high returns, we come to the question of decision. The decision here is to understand what type of IPO to invest in.

It’s better to invest in people than the company. I am saying so because the potential of the people running the company should be trustworthy and the plans of the company for the next 10 years should be clear and understandable to you. If these two aspects are clear, then it’s never bad to invest in an IPO.

However, never do the mistake of investing life savings in an IPO or any share gamble.

So, while IPOs can’t make someone rich, it’s never too bad to try a gamble. However, again, take the risk you can handle and invest the money you can hold for the long term. If not, don’t dive into unexplored territory.

Image Source: Google Images

Sources: Rupiko, Economic Times, The Hindu BusinessLine

Find The Blogger At: @innocentlysane

This post is tagged under: IPO, initial public offering, start-up, investment, invest, share market, shares

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