Yes, there is risk involved as you are playing around with crores of rupees. If the investment pays off, then you reap vast amounts of profits. however, if it doesn’t, then the debt is extremely high, which needs to be paid off in. short period, which ranges for about three months.
To understand this better, let’s take a gander as to what IPO funding means. IPO funding is the process of lending money by an NBFC to an HNI to invest in an IPO that is yet to be listed. These loans are short-term and provide high margins if the IPO clicks. However, these loans are primarily targeted towards HNI’s and are in the range of crores of rupees.
Furthermore, the risk involved is very high as the leverage amount is exceptionally high and the duration to pay the amount is less. It would be at least 3-4 months at the max. If the investment in an IPO doesn’t pay off, then you are very likely to succumb to massive amounts of debt that has to be paid in a short period.
But then, the reward that you reap from such investments is considerably higher, provided your IPO investment taken from an IPO funding source pays off. Do keep in mind that NBFC’s don’t offer these loans for the long term, and you will have to clear dues way before the tenure ends to avoid unnecessary penalties.