[ad_1]
Unlike traditional firms that bank on profits to attract public investment, new age firms tend to be loss-making entities that rely on valuations.
Despite being aware of the fact that a particular food delivery company was making losses from the start, some venture capitalists kept pumping money into it. After spending a huge amount of money on advertising to create a media hype, the company launched its IPO during the current up-market situation and sold its shares at a price that brought significant profits to the venture capitalists from the loss-making company. to sell.
Are they really IPOs?
Unlike traditional companies that bank on profits to attract public investment, New Age companies tend to be loss-making entities that rely on valuations inflated by opportunistic venture capitalists.
Such venture capitalists continue to pump money into loss-making companies to give the impression that such companies are very valuable and have good prospects of attracting huge investments. Ultimately, during high markets, when mostly novice investors are looking for newer opportunities to invest in stocks, such venture capitalists pass on the losses to the IPO investors by offering to sell the stakes at a high price to get a nice profit. to make a profit.
So, instead of investing to get the share of profits of profitable companies, such IPO investors end up making commitments from loss-making companies at a premium price, which they should normally have acquired at a discounted price.
Since the venture capitalists’ stakes in the companies are usually transferred to the investors in the process, it is also questionable whether these are really IPOs or just a change of ownership of the existing interests.
How to avoid such a situation?
While some such IPOs — after being listed on an exchange — open at a higher price, giving the IPO investors opportunities to sell the stock for a profit, you are more likely to end up losing money after being fooled. are held by the greedy venture capitalists.
So it is better to avoid investing in stocks during high market cycles, even through the IPO route, which is even more risky than investing in the stocks of existing companies.
What should you do?
You should follow the basics and instead of making lump sum investments in stocks, make regular periodic investments. So, if you’re investing in an equity fund (MF) through SIP, don’t let the noise related to the IPOs bother you and go ahead with your SIP.
In addition, because MF investments are managed by professional fund managers, they know better whether an IPO is worth investing in or not. So rather than investing directly in stocks, it is better to invest through MFs and leave the investment decisions to the fund managers.
Financial Express is now on Telegram. Click here to join our channel and stay tuned for the latest Biz news and updates.
|
Sources 2/ https://www.financialexpress.com/money/initial-public-offering-are-all-ipos-worthy-to-invest-what-should-you-do/2389932/ The mention sources can contact us to remove/changing this article |
[ad_2]