What's the role of an IPO? 5 things to know before investing

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1. When a company comes out with an IPO, it diversifies the ownership as it brings in new broad-based investors.

2. Shares must be listed on an exchange post an IPO and can be bought and sold between investors with surplus funds which provides liquidity.

3. Once listed, price discovery of the shares happen, which is competitive, market determined and reasonably fair.

4. While coming out with an IPO the company must meet high standards of disclosure and transparency.

5. Enterprise gets evaluated by many prospective investors, analysts, researchers which forms another layer of scrutiny over and above the auditors.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)