Vol. 4, Issue 1 (2017)
IPO, prospectus, disclosures: An understanding
Author(s): Samarth Pande, Somesh KR Shukla
Abstract: Every rational investor wants to grow wealth and for this reason keeps looking for the investment avenues that provide healthy returns so that he could add them to his portfolio and achieve his investment objectives. One of the options that always lure investors, is the investment in Initial Public Offerings (IPO). But the question arises here is - Is this option right for everyone and would it match all the requirements related to his investment objectives. Even if we assume that option is considerable, then what is the level of awareness amongst the general class of investors that would decide their fate as far as their investment decision outcomes are concerned? In developing countries like India, still investors are being referred to as ignorant and innocent and because of this characteristic feature, their chances of not meeting their investment goals or losing their capital or wealth gets heightened. This is termed as risk in investment. Risk is there in every investment, of varying degree and type. One cannot avoid it, but one can certainly reduce it. For this, the investor has to shun the attitude of remaining ignorant and claiming innocence on being duped of wealth. No doubt we have market regulators framing stringent rules for the market intermediaries to provide adequate policy protection to the market players/participants, but then nothing like being your own savior. In the age of digitization, information is in your hand and should be used as your biggest power. It is in this background, this scholarly article attempts to provide a detailed understanding of various issues related to investment in Initial Public Offerings, like understanding various terms used in the investment offer document(Prospectus), how to read it and use its disclosed information(disclosures) to make a sound and informed investment decision and also to understand various regulations framed by SEBI Act and Companies Act to ensure that the investors’ interest is not adversely affected for the lack of knowledge and non- disclosure of essential information.