In the capital market, companies raise their funds through multiple modes- debt or equity. The capital market acts as a platform that facilitates the flow of funds from investors to companies that require funds. When a company desires to list on a registered stock exchange, then it launches a new type of securities in the public domain. In order to get funds from retail investors, institutional investors, and other high-wealth investors. These Investors buy these new securities in the form of shares and become the registered owners of the company.
Do you know how a general investor invests his/her funds? This article will present a conceptual view of this type of investment and funds raising. To expand the company or to introduce new securities in the market, a company introduces an IPO (initial public offerings). In these offerings, a company issues security in the market for the first time in order to give a chance to investors to invest their surplus funds.
Online IPO: A new phase of fund investment in the digital era
After the formation of a company, it raises funds through private sources, financial institutions, high net worth investors, and close friends. At this time, the company can raise funds without publicly listed securities. When a company introduces an IPO in the capital market, then it gives an opportunity to public investors to invest their funds in the company.
In the present digital era, demat accounts provide a facility to invest in online IPOs through digital mode. Prior to digital investment, companies used book-building processes through physical modes. In which investors usually give their bids through physical presence, but now demat account has made the investment in IPO quite easy for every investor.
To make understanding clearer and more precise, let us understand what is a Demat account?
A demat account is digital safe for the securities bought by investors in the stock market. It is a computerized safe that holds the traded stocks, bonds, exchange-traded funds, money market securities, and government securities with two depositories. In India, NSDL (National Securities Depository Limited) and CDSL (Central Depository Service Limited) hold and protect every digital security that is traded in the stock market. It ensures the physical trading of securities.
Is there any relation between a Demat account and an online IPO?
A Demat account usually assists the investors to invest their funds in an online initial public offering. Brokers analyse the upcoming IPOs of different companies and then put the details regarding the company’s fundamentals, valuation parameters, and others. This information helps the investors to make decisions regarding investment.
When the IPO process starts, investors can make use of a Demat account to put their funds in the new and fresh securities. This account offers multiple options in which the “IPO” section explores the platform to apply for a certain company’s securities.
Generally, a demat account mentions the following details about an IPO for a company:
- Bidding dates (Opening and closing)
- Minimum required investment
- Price range for bids
- Issue size of an IPO
- Details of an issuer company
- Strength and risks related to the company
- Financial fundamentals of the company
After considering the information, an investor can apply for the bids with an available option in the account. Once all bids are accepted, the company allots the stocks and informs the investors. In this way, an online demat account acts as an assistant for retail investors, institutional investors, and other investors to invest funds in the capital structure of the company.
An IPO, which is a primary source to get listed on the stock exchange, requires investors to offer their funds through either physical or digital mode. These investors can use their online trading and demat account for effective fund investment. Various brokers provide simple dashboards to invest in the various IPOs. It enables investors of all levels to research and invest carefully in their selected companies.