To invest in IPOs, you can also take the mutual fund route
The current IPO craze has turned the stock market into a lottery, particularly for retail investors. The chances of getting allotment in target IPO are slim and even if you get it, the odds of hitting jackpot are poor.
Experts believe this mutual fund scheme offers a better way to participate in IPOs.
IPOs are flying thick and fast, and investors are spoilt for choice. But with most IPOs oversubscribed many times over, investors are landing up with zero allotment. For those feeling left out, there is another way in—Edelweiss Recently Listed IPO Fund. Is this fund worth adding to your portfolio?
The current IPO craze has turned the primary market into a lottery, particularly for retail investors. The chances of getting an allotment in the target IPO are slim. Those who do get allotment end up with a fraction of the shares applied for. Since January 2018, IPOs witnessing greater than 50% gains after listing have seen average retail subscription of more than 27 times. IPOs fetching between 15%-50% gains have recorded nearly 13 times subscription on average. So many individuals would have likely missed out on these stellar gains.
Further, even if you get allotment, odds of hitting the jackpot are poor. Finding success in IPOs is akin to betting on the toss of the coin. While several new listings have created phenomenal wealth, many have turned out to be duds. Since January 2018, 44% of new listings have clocked more than 15% annualised return. Twenty two small-caps to list on the exchanges in this period have turned into mid-caps and another four small-caps have grown to become large-caps. At the same time, several new listings have fizzled out. Nearly 31% of companies that have listed between January 2018 till October are currently in the red. Five mid-caps have turned into small-caps after debuting on the bourses in 2018. Four small-caps have been suspended. Clearly, investors need to be very picky when investing in IPOs.
For investors feeling left out or unsure of which IPOs to target, the Edelweiss Recently Listed IPO Fund offers an alternate path. This one-of-its-kind thematic fund was launched in 2018 as a closed-end fund, Edelweiss Maiden Opportunities – Series 1. It was converted into an open-ended avatar on completion of its tenure in June this year. As the name suggests, its sole mandate is to invest in companies that go public through IPOs. The fund cherry picks 30-40 of the best ideas from 100 recently listed and upcoming IPOs. Its top picks currently include Amber Enterprises, Sona BLW Precision Forgings, Gland Pharma, Zomato and HDFC Life Insurance.
Dabbling in the stock market via IPOs? Run these 5 investment checks first
1/6
The current IPO craze has turned the primary market into a lottery, particularly for retail investors. These IPOs have seen great retail investor participation especially from Gen Z investors. So far in 2021, 41 companies listed on the Indian stock exchanges apart from the ones listed in overseas markets. If you too are planning put in your money for subscription in an upcoming IPO, take into account these 5 legal and investment aspects first.
The current IPO craze has turned the primary market into a lottery, particularly for retail investors. These IPOs have seen great retail investor participation especially from Gen Z investors. So far..
Read More
The company prospectus is a holy document which invites the potential investor into an offering and contains the bid range, the minimum bid and the opening and closing dates of the IPO. Make sure you don't miss the price band. With the trend of loss-making companies introducing their IPOs into the market, sometimes the price range depends on the bids received. This is an expectation game. It would be wise to give a standing instruction to your broker as to what would be the minimum number of shares you would like to acquire and at what price range.
The company prospectus is a holy document which invites the potential investor into an offering and contains the bid range, the minimum bid and the opening and closing dates of the IPO. Make sure you..
Read More
Investment for the IPO can be made from either an individual or a joint account. Familial dynamics have changed significantly and continue to, it would thus be prudent to discuss with your joint account holder whether they feel comfortable with the process. Document the same in case of eventualities that affect relations. There could be a contractual arrangement among family members for a specific class of investment, where they agree to the risk potential within the range. These could be multi-party agreements which take into account the addition to the family and serve as a 'go-to' document in case of uncertainties. The contract could also contain confidentiality arrangements so that nobody has access to it other than who you decide to give access to. This can range from a nuclear familial contract to a joint family arrangement.
Investment for the IPO can be made from either an individual or a joint account. Familial dynamics have changed significantly and continue to, it would thus be prudent to discuss with your joint acco..
Read More
The Draft Red Herring Prospectus (DRHP) is the best document to uncover historical events of the company and the relationships that it has with other firms. Always look out for what is being proposed by the company while selling you the shares. Pay importance to the essential feature called 'Risk Factors' to find a fit with the risk being flagged in the DRHP with your individual or joint risk appetite/s. There is an increasing trend of litigation against a company which may bring down large corporations or revive them. The section called 'Outstanding Litigation' gives you a view of the likelihood of the litigation ending in favour of the company you are considering investment.
Help yourself with the DRHP's 'Market Overview' which the company is obligated to at the time of listing. Use this to your advantage and sieve it thoroughly for pitfalls that you may foresee. It is also quite probable that the company that you are keeping track of is being listed. However, it is a must to understand the financial details of any company, especially of an unlisted one, before investing.
The Draft Red Herring Prospectus (DRHP) is the best document to uncover historical events of the company and the relationships that it has with other firms. Always look out for what is being proposed..
Read More
Have you signed official documents agreeing not to hold investments in another company in the same sector as the one you are working in? Recall if you have made any such commitments. Whether this investment will have a conflict with the company you are employed in now is a common dilemma that occurs. Consider and consult before making this decision so that it doesn't jeopardise your future.
Have you signed official documents agreeing not to hold investments in another company in the same sector as the one you are working in? Recall if you have made any such commitments. Whether this inv..
Read More
The listing gains you make from the IPO must be reported in your income tax return (ITR). With PAN-Aadhaar linking, the regulator is likely monitoring your transactions and expecting to see these in your ITR. Make it a habit to reconcile what is being invested and what you have harvested as gains. Assess the impact this may have on your income tax that year with the help of a professional. Remember, ITR has 5 heads of income and you are assessed on total income including the income from capital gains. Your salary alone may leave you in a lower tax bracket but the bump from the IPO-induced capital gains may put you in a higher bracket.
The listing gains you make from the IPO must be reported in your income tax return (ITR). With PAN-Aadhaar linking, the regulator is likely monitoring your transactions and expecting to see these in ..
Very few IPOs are investment worthy Oversubscription keeps many retail investors out Experts believe this vehicle offers a better way to participate in IPOs. Amol Joshi, Founder, PlanRupee Investment Services, argues, “The lure of quick gains tempts investors to put money in any IPO, which is a recipe for disaster. It is better to let a mutual fund do the due diligence and weed out the junk.” Santosh Joseph, Founder and Managing Partner, Germinate Investor Services, adds investors stand a much better chance of getting exposure to a new listing via a mutual fund vehicle. “A fund house is in a more advantageous position to get allotment through the IPO’s institutional quota or anchor book subscription. Even if it misses out, it can buy the shares at an appropriate time after listing.”
Timing the exit is another aspect investors grapple with when investing in IPOs on their own. Most tend to exit immediately after listing, missing out on possible future gains. Impatient investors often sell out if the company takes time to deliver on expected growth. “A lot of money can be made even post listing as earnings momentum for newer businesses can continue for a long time,” says Bharat Lahoti, Fund Manager, Edelweiss AMC. A longer holding period is needed to fully capture these opportunities. A professionally managed fund is better placed to do that. Besides, the fund’s portfolio is likely to have very low overlap with any existing diversified equity fund you may own. Traditional flexi-cap funds on an average have less than 10% exposure to newer listings. What to watch out for The fund has a strong performance track record. It has fetched 36.7% annualised returns over the past three years, compared to the S&P BSE500 TRI return of 21.85%. Yet, given the nature of IPO market itself, investors should take this performance with a pinch of salt. Be mindful of the risks that tag along with IPOs. The fund features a distinct tilt towards the mid-and small-cap basket, observes Joshi. Many of these companies have not been tested across business and economic cycles. Some newer tech-driven firms have not yet clocked profits. This gives the fund a distinct risk profile compared to traditional diversified equity funds. Those keen on a select few IPOs can skip this route as investors don’t have a say on IPO selection in the fund.
Investors looking to tap quality IPOs in foreign markets may also find a convenient way soon. Motilal Oswal AMC has filed for a new fund—Motilal Oswal S&P US IPO & Spinoff ETF. This will allow investors to bet on newer companies in US markets. Experts say international exposure should preferably be in the form of diversified funds rather thematic offerings.
Jio Platforms plans $3 billion debt reduction from IPO proceeds2026-06-20T12:11:21Z
