Advantages of Investing in IPO'S(Initial Public Offerings)

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Why companies go for public offerings?


Say you are an entrepreneur, who started a corporation, with a few closely known members as the shareholders. The profit or loss of the Company is borne by these people. As the company continues to mature, and the Company starts seeing the growth potential, any Company head would think of making their business even bigger. To make it even bigger, to achieve greater heights, you will need a huge capital investment. And you cannot rely on the banks every time.
This is when you should start contemplating on the pros and cons of making an Initial Public Offer.
Advantages in Investing in Initially Public Offerings.

What is an IPO? 

When a private company sells securities to public in the form of shares for the very first time, it is known as the (Initial Public Offering).

Advantages :

Raises a lot of money.
Increases Liquidity. 
Helps in mergers and acquisitions.
Gives visibility and credibility. 
Improves pecuniary situations. 

  1. Raises a lot of money :

This is the chief raison d'être for a company going public. The company may need money to clear off debts, to invest in research and development, to expand the existing unit, to improve infrastructure and many such reasons which help in their future development.
  1. Increases Liquidity :
The employees, the stakeholders and the venture capitalists would have put their sweat and blood for the company to achieve considerable success. The company would have paid them in the form of equities. When the company goes public, it is the time when they start reaping benefits in the form of cash.

  1. Helps in mergers and acquisitions :
When a public company enters into a deal for a merger or an acquisition with smaller competitors, the terms of the deal usually include shares. That way cash flow to the smaller companies becomes smooth and effective.   
Gives visibility and credibility :
Going public gives a company and visibility. The public companies should be better professionally managed and fiscal data should be more transparent as they have to report it to SEBI periodically. Hence, to the world, the Company looks more credible.

  1. Improves pecuniary situation :
Selling their equities to public would have generated a lot of liquidity and capital, which will be used for the better future of the Company. Hence, the company will be in a better financial situation, to apply for loans or to negotiate the terms of the loans.

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