5. What is an IPO?

IPO or Initial Public Offering is our first step into Investment. It is a risk free investment so you don't need to worry at all..In my first article I talked about a Public Company and how we invest in such company. We need to know that  we cannot invest in every public company, we can only  invest in such companies which are listed in Securities Exchange Board of Nepal or  in short SEBON. SEBON  regulates the stock  market of Nepal and for simplicity lets say it is the main body. There is a vast process which a company should follow in order to issue IPO. We will not talk about that process as it is not relevant for us but what we will learn is how we can we invest in such shares. I will take an example to explain about IPO. Suppose a company ABC ltd(  we know it is a public company because of ltd) was formed by 100 shareholders with a capital of 50 crores  After 5 years the management of the company decided that they need to expand the business into other sectors and other locations as well but in order to do that they need additional 20 crore. The promoters of the company (the initial share owners) decided that they will offer their company's share to general public that is us and in return get the necessary money. Why did they not go to bank for such money you may ask? Because bank charges interest and general public do not. So it is beneficial for Company to ask general public for money. So in order to offer general public the shares the company goes to SEBOn and ask for the permission to offer their shares to the public. And when SEBON gives the permission the company comes up with  Initial Public Offering or IPO to sell its share to the public and get the required fund needed. 

So now we know what is an IPO, in next blog we will learn about how we can invest in an IPO with the help of Meroshare. 

For time being you can follow the news about  Dish Home as this company is asking for permission from SEBON to issue IPO. 

Thank You for reading