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Published on Tuesday, September 11, 2018 by Chittorgarh.com Team | Modified on Thursday, May 23, 2019
Companies need finances to run their operations, pay existing debts or to fuel their expansion activities. IPO (Initial Public Offerings) are a popular way for unlisted companies (those whose stocks are not listed in stock exchanges) to raise capital for their business needs.
A company can raise capital in two ways: Equity and Debt. In equity, it raises capital by inviting investors to be the shareholders of the company. In debt, it borrows from investors with the assurance of a predetermined rate of return.
Equity IPO's are financial instruments issued by a private limited or an unlisted company to raise capital via equity. The company invite investors to contribute capital and become a shareholder in the company. After the successful issuance of the IPO, the company gets listed in an exchange and its stocks are available for trading.
Equity IPOs are of two types based on their issuing price process-
NCDs are fixed-term financial instruments issued by a company to raise capital via debt. The company invites investors to lend it money for a specified period to fund its business requirements. In return, investors are promised a predetermined rate of return.
NCD IPOs are of two types:
Equity IPO |
Debt IPO |
Capital raised by sharing ownership with the investors. |
Capital raised by borrowing from the investors. |
The investor is a shareholder. |
The investor is a lender. |
No assured returns. |
Assured returns at a fixed rate. |
The risk is high, Reward potential is high. |
Moderate risk, moderate returns. |
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