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What Are The Things Seniors Need To Consider When Investing In Equity IPOs?

IPOs can be an option for senior citizens to earn a good return, but they need to keep some crucial points in mind before they go ahead

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Amit Sethi
November 23, 2023
Investing In Equity IPOs

Investing In Equity IPOs

Every year, several IPOs hit the market; some perform very well, while some fail to match investors’ expectations. The good thing is that the fund is deducted from your bank account only when you get an allotment in the IPO, so your fund lies safely in your bank account. The IPO application process is also very simple, as you can use your online banking account or UPI ID on your stockbroking platform to apply for an IPO as a retail investor. The ease of investing and the high chance of earning a good return makes it an attractive option even for senior citizens. However, senior citizens need to be aware of some important points before Investing In Equity IPOs.

Use A Fund Which Is Not Meant For Your Financial Goals 

Working people have a high-risk appetite, and they can afford to lose money because they know they have time in hand to recover from such losses. However, senior citizens can’t afford to lose their money as they depend on their retirement corpus to meet their financial needs. So, before investing in equity IPOs, make sure the fund that you are using is not meant for your retirement goals. For IPO, always use the money that is separate from the fund meant for meeting your regular expenses because you can afford to lose them!

Choose The IPO Carefully 

The excess money in your retirement can work as a financial cushion for you. So, even if you can afford to lose it, make sure you don’t have to lose it, but how? Before investing in an IPO, make sure the company in whose IPO you are investing is financially strong, and it has good future growth prospects. A little research and reading the detailed information available in the Red Herring Prospectus (RHP) filed by the company can help you make the right selection of the IPO to invest your money in.

Decide, Are You Investing For Listing Benefit Or Long-Term? 

Normally, there are two types of IPO investors: first, who invest for a listing benefit and second, who invest for the long term. People who invest for a listing benefit exit the stock on the listing day even if the IPO performs negatively. On the other hand, long-term investors stay invested even if the company’s share lists at a higher premium. So, before investing in an IPO, make your strategy clear in advance, whether you would exit on listing day or stay invested for the long term.

Nowadays, you can get access to the expected listing price of an IPO through their grey market premium (GMP), which is regularly updated on various online platforms. Avoid relying completely on GMPs, but you may use such information to evaluate and compare your IPO judgment based on your research. Usually, good IPOs are oversubscribed heavily, thus resulting in a lesser chance of getting an allotment. However, seniors can use the spare funds lying idle in their bank account to invest in the IPOs.

 

The author is an independent financial journalist

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