Not exactly, but if you invest in the right IPO with detailed research factoring all possible scenario’s, it could be less risky. However, any investment made into the stock market carries an equal risk to reward ratio provided you know what you’re doing.
With any investment that you make in the stock market, there are risks attached at all times. No matter how stable the investment segment might be, the risk to reward ratio might be low, but it’s still there. The same goes for IPOs. IPOs allow investors and traders to have a chunk of the action by buying shares of a company for a lower price before being listed on the stock exchanges.
However, with this approach, there are inevitable risks involved in how an IPO might perform after being listed. Some of which are given as follows.
• Once the stock price is listed, it could fall dramatically and lose a significant chunk of its value.
• The chances of getting an allotment is relatively low because the popularity of the IPO would lead to oversubscribing, and the issuing of allotment is done through a lucky draw.
• The major let down of an IPO would be the refund process which would take weeks, if not months, to get credited back to your account.
Bottom line
I’m not saying that investing in an IPO is always risky; rewards can be reaped extensively. However, the IPO in which you invest and how well you carry out your research and the bid price you place to factor in as to how effective your investment can be and how easily you could eliminate the risk factor from investing in IPOs.