In the last few years, a significantly large number of IPOs hit the market. Many offered an attractive return to their investors, and gradually, many senior investors also started trying their luck in the IPO street with anticipation of making quick money. Aren’t IPOs risky? They are, but they also offer a chance to make quick money, especially in a bullish market. For young investors and people far from retirement, it can be an easy ‘Yes’ if asked whether they should invest in the IPOs. But, answering the same question becomes tricky when the investor is a senior citizen.

Seniors may try their luck in IPOs but must be extra careful in selecting the issue. They should be watchful about some important factors that are discussed next.

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Listing Gain Vs Investing For long-term

Usually, people invest in IPOs for two types of return benefits; the first is for listing gain and the second for long-term growth.

Young people may choose any of the two options. However, seniors may prefer an IPO investing for a listing gain because they may not be able to track them if invested for the long term and it may also create liquidity issues if the stock price falls in the future.

Knowing The Risks Involved

Investing in IPOs may be subject to several risks and senior people need to be aware of them before they plan to invest in such IPOs. For example, the share may list at a lower level than the issue price, and market sentiment may change after bidding and before the listing of the share thus causing a loss to investors, and often IPO bidders don’t get allotment when there is a high oversubscription.

How Much Should You Invest?

Seniors must not disturb the corpus they have kept aside for accomplishing their retirement goals. They can use the excess funds which are unallocated and not meant for meeting a specific financial goal. Seniors can invest in the retail category i.e. below Rs 2 Lac or HNI category i.e. above Rs 2 Lac, depending on their risk appetite and availability of idle funds.

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Things To Know Before Investing In An IPO

Check the availability of adequate funds in your bank account before you invest in an IPO. On successful bidding in an IPO, the requisite fund is marked as a lien in the bank account. If you get an allotment then the amount is deducted from the account, else the lien amount is released. Normally an IPO remains open for a bid for 3 trading days. It takes around 2 to 3 trading days after the IPO is closed for allotment or release of funds and listing of the share in the stock exchange.

There are many IPOs lined up in the Indian stock market. Some of them have parent companies already listed in the stock market and if you have their stock in your portfolio then you can also get a chance to bid under the shareholder quota that increases the possibility of getting an allotment. So, be ready with a strategy to increase the chance of getting an allotment when you bid in the next IPO!

The author is an independent financial journalist.