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IPO

The first sale of stock / shares by a private company to the public.

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About IPO

Initial Public Offering (IPO) or stock market launch is a type of public offering in which shares of stock in a company usually are sold to institutional investors that in turn sell to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors.

IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.

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IPO Pricing

For any company, deciding to go public is a big step. The IPO process, which transitions the company from private to public ownership, has many moving parts. One important part of the IPO process is determining the IPO price, or the price an investor will pay for each share of IPO stock.

The company and its underwriters work together to figure out how the IPO should be priced. Since the stock has never been traded publicly before, it is hard to predict how it will be traded once public. However, there are some factors that can help determine demand for the stock and its potential future trading activity.


Finding the initial IPO price range

To help determine the IPO price range, underwriters and the company will typically look at a variety of factors including:

•  The amount of stock being sold in the IPO.
•  The structure of the private ownership of the company.
•  The potential growth of the company.
•  The profitability of the company’s business model.
•  The current stock prices of public companies in that industry.
•  The general trend of the overall stock market.

In addition to these numbers, the company’s history, products, management and reputation are factors that often affect the IPO price. In addition to the financial figures, a company’s story can also influence the IPO price.

These factors are used to determine the estimated IPO price range, which is included in the preliminary prospectus. This document is often called the “red herring” because of the red text on the cover explaining that it is not yet final. The preliminary prospectus is part of the registration statement, which has been filed with the SEC in preparation to offer stock to the public. After it has been filed, the preliminary prospectus is then used to determine interest in the IPO.


Arriving at a final IPO price

After the prospectus with the initial IPO price range is filed, the company and lead underwriter conduct a road show. During the road show, company management will make presentations to potential investors, usually large institutions. Although the interest from potential investors for the IPO is not final, the company and underwriters will use it to determine the final IPO price. If interest is high, the IPO price range may be raised during the road show based on that demand. If interest is low, the price range may be lowered.

After the road show, based on the demand for shares and other factors, the company, with the input of the underwriters, will work to set the final IPO price. If the price falls outside the initial estimated price range (any amount below or more than 20% above initial range), underwriters and other brokerage firms selling shares are required to contact investors to confirm any conditional offers that were based on the original price range.

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Saving For The Future

For small savings or a more substantial long-term investment, buying gold or gold-backed financial products protects wealth and can increase risk-adjusted returns. Having a small amount of gold within a balanced investment portfolio can potentially reduce its overall risk, helping to protect against market shocks. While it is reassuring to have a physical asset of enduring value, investors buy gold for many other sound financial reasons.

In turbulent times, gold is resilient. The amount of available gold is constrained and cannot be expanded at will, as is the case for fiat currencies through expansionary monetary policies – especially in times of financial and economic crisis. Additionally, unlike a stock, where the underlying company can go out of business, or a bond, where the issuer may default on a coupon or redemption payment, gold has no credit risk.

Demand for gold continues to outstrip supply. Jewellery and technology applications make up more than 50 per cent of demand, and most gold is bought in the world's fastest-growing emerging markets. China and India account for more than half of all gold purchases, annually. Newly-mined gold can only meet about two-thirds of current global demand. In addition, central banks are no longer net sellers of gold, so the rest of the demand is currently fulfilled with recycled gold. With demographic and economic trends predicting increasing wealth and expanded populations in the world's two largest gold markets, gold demand has the potential to continue rising.

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How To Invest In Gold

There are many ways to invest in gold. Different products can be used to achieve a variety of investment objectives. Investors can buy physical gold through coins or bars; or they can buy products backed by physical gold, which offer direct exposure to the gold price; or they can buy other gold-linked products, which are directly related to the gold price but do not include ownership of gold.

Some of the examples of these gold investments are Gold Accumulation Schemes, Gold MF, Gold ETF, etc.

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