Ace Indian investor Rakesh Jhunjhunwala said, “There is a lot of froth in the IPO market,”. The billionaire investor added, “They will have to wait for two to three months and then come at lower or fairer valuations,”.
Rakesh Jhunjhunwala has placed only small bets in IPO in recent times and believes the shares are over-valued and expects a correction in their prices to take place in two to three months.
2017 has been a legendary year for the IPO market. A total of $11 billion has been raised so far. Some of the best performing IPO came early this year with Shankara Building Products and Avenue Supermarts. These IPOs performed incredibly well. They went on to get subscribed multiple times over and upon launch, their values climbed steadily.
Seeing such easy money, many people opened demat accounts solely to invest in IPO. It seemed like an easy way to make money very quickly.
The problem with many of these IPO investors was that they viewed IPO as a guaranteed way to increase wealth very fast. They did not care to look at cases of when IPOs performed poorly.
Rakesh Jhunjhunwala himself follows a long-term approach to investing. When investing in any equity products (shares/stocks), it is best to invest for a long duration. Making great profits in the equity markets in a short period is very risky and not advisable at all.
IPOs of companies like New India Assurance and Khadhims India showed many investors that every IPO wasn’t a very good investment. Many investors burnt their fingers trying to make a quick buck.
In terms of risk, investing in IPO without the proper knowledge is an extremely risky move. If you do not have good knowledge of what you are doing, you are practically placing a bet. If that is what your aim is, then invest in IPO. Else, you should look to other investing
Where to Invest Instead of IPO
Any investment in any kind of equity related instruments should be held for a long term. Mutual funds are a very good option for investing. Equity mutual funds let you invest in the equity markets in a surrogate manner. You choose a mutual fund based on your investment needs and invest. The fund manager of that mutual fund then carefully allocates the money in well-researched investments.
Equity Mutual Funds
Equity mutual funds are funds that invest in the equity markets.
These funds invest in small-cap companies and are known to be of high risk. Invest in a fund of this category if you are willing to take the risk. Also, you should have an investment horizon of more than 6 or 7 years while investing in small-cap mutual funds. Here are top small-cap funds arranged in the of their star rating with 5 stars being the best.
Mid-cap funds invest in mid-cap companies. They are still considered to be risky but less risky than small-cap funds. Even in case of these funds, your investment horizon should be long. Aim to stay invested in these funds for at least 5 years. Some of the best mid-cap funds are listed here.
Large-cap funds, as the name suggests, invest in large-cap companies. These are some of the biggest companies in the country. It is commonly recommended that investors keep 70% of their equity investments in the large-cap sector. The investment horizon for such funds is around 4 years or more. They are a lot less risky than small-cap and mid-cap funds. These are some of the best rated large-cap companies.
These funds invest in companies of every category. Their risk level is similar to that of mid-cap funds and so the investment duration. Invest for at least 5 years. The best multi-cap funds are listed here.
These funds invest only in a given industry or sector. The advantage of this is, the funds are better poised to gain from the good performance of a certain industry. For example, there are automobile sector funds, infrastructure sector funds, and so on. Here are the best sector funds that you can invest in. However, you must remember, sector funds are the riskiest of all equity mutual funds. Invest in sector funds only if you have a good understanding of the sector.
New Fund Offering (NFO)
If you want to invest in new schemes, invest in a new mutual fund. When new mutual funds are launched, they’re called NFO. These are still riskier as there is no track record to follow but they are still less risky than selecting an IPO without research. For example, Axis Mutual Fund has just launched their new mutli-cap fund, Axis Multi-cap Fund.
Investing in mutual funds is a lot simpler and easier than investing in IPO. To start investing in mutual funds, visit Grow today!
“Give your investments time to mature. Be Patient for the World to discover your gems.”- Rakesh Jhunjhunwala