If you’ve been scrolling through any social media lately, you might have came across IPO-related content, and you must have probably noticed the increase in the buzz around IPOs. With hot IPOs like Lenskart, Groww, Physics Wallah, and Pine Labs gearing up for listing, investor views and emotions are divided – overvalued or fairly valued; to get excited or to get anxious.
But with all this hype also comes confusion: Is it really worth investing in an IPO? Or should you wait and invest after the listing, after proper analysis of the company’s fundamentals? Is there an option to invest in these freshly listed companies through an IPO fund? Let’s break this down for you today.
IPO Hype – What’s Really Going On?
Whenever big names like Lenskart or Groww hit the IPO market, conversations heat up; from Grey Market Premium (GMP) tracking to valuations and the expectations with regards to listing and post listing future of the company.
Many investors today consider GMP a major factor in whether to invest in the IPO or not. While GMP matters for short-term traders, especially for those who apply for an IPO hoping to sell immediately as soon as it is listed at a premium, GMPs can be misleading for long-term investors.
For long term investors, valuations, business fundamentals, and growth potential matter far more than short term listing gains. They should approach IPOs the same way that they evaluate any listed stock – by analysing financials, cash flows, and the intrinsic value of the company through methods like DCF, Relative Valuation or Residual Income models.
This is a tedious and a long process and of course, not everyone has the time or the expertise to do this. And this is where IPO Funds step in.
What are IPO Funds?
IPO Funds are mutual funds that invest primarily in companies that have recently got listed. They aim to capture the potential upside from these newly listed stocks i.e. after the initial listing but while the companies are still in their early growth phase.
These funds offer investors a convenient way to participate in India’s IPO boom without having to apply for every new issue individually and then hope to get a listing. We all have been through that pain, right? Through these funds, the fund manager does the heavy lifting: researching, analysing, and deciding which IPOs are worth investing in and when to exit.
So while you read through the headlines discussing whether the IPO is overvalued or not, the fund management team is already evaluating whether the business is fundamentally sound enough to hold in the portfolio.
Active vs Passive IPO Funds
There are two broad approaches to IPO investing through mutual funds:
Active IPO Funds
These are actively managed by professionals who select the most promising recently listed companies. They can avoid overpriced IPOs and rebalance holdings as valuations change. For example, the Edelweiss Recently Listed IPO Fund is an active fund investing in recently listed companies. This fund invests in the 100 most recent IPOs using a bottom-up research process. The fund holds a diversified mix across sectors – from consumer and healthcare to renewable energy, and has also delivered strong long-term returns since its inception in 2018.
Passive IPO Funds
These funds simply replicate an IPO index, like the BSE Select IPO Index or the NSE IPO Index, which tracks companies listed through IPOs and spin-offs. The index is rebalanced every quarter and includes up to 100 stocks, with weights capped at 5% for every stock. Passive funds aim to mirror the index’s performance rather than beat it. Mirae Asset BSE Select IPO ETF is currently the only Passive IPO Fund that tracks the BSE Select IPO Index.
Let’s take a look at how these funds have performed in the past vis-à-vis their benchmark and market.
| Metric | Edelweiss Recently Listed IPO Fund | BSE Select IPO Index | Nifty IPO Index | Nifty 50 TRI |
| 1 Year CAGR | -3.5.% | 3.19% | -8.11% | -3.45% |
| 3 Year CAGR | 14.73% | 21.82% | 14.20% | 14.21% |
| 5 Year CAGR | 19.79% | 23.29% | 14.43% | 18.36% |
| Since Inception | 14.01% | 13.85% | 8.03% | 13.41% |
Source: Edelweiss, BSE India, NSE India, EduFund Internal Research
Why consider IPO Funds now?
With India’s startup ecosystem booming and companies like Groww, PineLabs, and even OYO also expected to go public soon, IPOs are once again becoming an attractive segment of the market. But as valuations soar, identifying the right IPOs get tougher. That is why IPO Funds, especially well-managed ones, can help investors gain exposure to this exciting space without chasing hype.
They combine professional research, diversification, and timing discipline, three things most retail investors struggle with when applying directly to IPOs.
Conclusion
If your goal is to invest, not trade in IPO companies, IPO Funds could be a great fit. They allow you to participate in the journey on the new age business; from listing to long term growth without worrying about overpaying for valuation or missing out on allocations.
So the next time the internet is buzzing about the next big IPO, take a step back. Instead of rushing in to invest for the long term, consider a smarter route – let the IPO Fund do the work for you; be it Active or Passive. Because in investing, patience and process always beats panic and popularity.
Disclaimer: The data in this presentation are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. The information placed on the presentation is for informational purposes only and does not constitute as an offer to sell or buy a security. The Company reserves the right to make modifications and alterations to the content available on the presentation. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. The EduFund platform & the website is owned, operated and maintained by Helena Edtech Private Limited, a company incorporated under the laws of India. An affiliate of the Company, i.e. Edubillions Tech Private Limited is registered with AMFI as mutual fund distributor bearing the registration number ARN258733. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The valuation of securities may increase or decrease depending on the factors affecting the securities market.
