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Understanding IPO, Its Purpose and How It Works for Investment

 

 

When discussing the capital market world, IPO discussions are certainly not something we can overlook. The term IPO has become increasingly discussed as several domestic startups have listed on the stock exchange.

IPO is one financing option for companies besides bank loans. Unlike bank loans which have interest and maturity dates, IPO financing is long-term, based on ownership (not borrowing), and requires no collateral.

A company that has completed an IPO will be connected with investors and receive dividend distributions through the General Meeting of Shareholders (RUPS). Besides IPO, the public is also quite familiar with the term "going public".

IPO stands for Initial Public Offering, which is when a company's shares are sold to the general public for the first time. The term IPO refers to companies that have just entered Indonesia's stock exchange or BEI (Indonesian Stock Exchange).

This means that company shares that were previously private can now be purchased and owned by the general public. When conducting an IPO, the company also changes its status from a closed company to a public company. Thus, the public now has the opportunity to "own a company" by investing capital in it.

Why do companies conduct IPOs?

You might wonder why many companies choose to conduct an IPO. Couldn't a company maintain a good business path without entering the capital market world? The answer is that an IPO is one way for a company to raise substantial capital during the initial offering.

For a company, capital is like a force that can help the company move forward and develop further. When an IPO is first conducted, shares are sold at a relatively standard price.

These shares have the potential to increase each year, which also lifts the company's value. Of course, this is very advantageous for the company. If so, how can investors benefit from an IPO?

Benefits of IPO for investors

1. Potential for double profits on the first day of listing

Shares that conduct an IPO for the first time have the potential to earn profits of up to double when listed on the BEI. Typically, shares move up significantly on the first day of trading. When the price soars, investors tend to sell shares to make large profits in a short time. Since this increase is still a possibility, investor diligence is required to identify the potential profit from rising share prices.

2. Long-term prospects

Companies that can conduct an IPO are those with good financial track records over a certain period and also have profit potential in the future. Therefore, investing in such companies has the potential to provide long-term gains due to guarantees from the company's own performance.

Another advantage of owning shares in a company that conducts an IPO is the possibility of achieving maximum returns on your investment. IPO share prices tend to form stably. Therefore, it is very possible to reach ARA (Upper Rejection Auto) or a condition when shares rise significantly to touch the upper limit set by the exchange. Investors generally like when their purchased shares reach ARA due to the substantial profits gained.

Shares that frequently reach ARA should be allocated for experienced investors. This is because share prices can change in minutes or seconds. There are also times when rumours are created by brokers to influence prices. Given these risk factors, it is necessary for someone to be accustomed to and careful with such changes.

Based on the explanation above, are you interested in becoming an investor? You should know that investing through stocks certainly has its own risk factors. Here are some things that beginner investors should consider before buying IPO shares:

• Understand and learn everything related to stocks

You can start by understanding what stocks are and how they work. This is very important and cannot be overlooked. Because this basic knowledge will be the foundation for your decisions when trading stocks.

• Find a reliable securities company

When you want to conduct an IPO, you can directly look for a securities company that can facilitate your investment. Make sure the company is trustworthy and has a good track record in helping investors open stock accounts at BEI and conduct transactions.

• Conduct careful analysis when choosing the type of stock to purchase

Each stock has its own profit potential and loss risk. Therefore, also understand the condition of the company you are targeting and what its prospects are in the future.

These are some things that prospective IPO stock investors should know. Before deciding to buy IPO shares, you should carefully consider your reasons for financing a company.

Given that stock investment is a high risk high return category, you must truly know the company you want to fund. That way, the shares you give to the company will not be wasted.

 

For more information regarding IPO, please contact our customer service at 021- 27939391 or download the Yo! Inves application on Google Play Store or App Store to register and invest according to your risk profile and investment goals.