New Delhi: The government has asked investors planning to put their money in IPOs to check with the Ministry of Corporate Affairs on issues like the promoters’ track record and regulatory compliances.
Investors should verify the track record of the company and its promoters, compliance status with various regulations and whether any of its officers had been found guilty of economic offence, the Ministry of Corporate Affairs said.
Similar alerts were earlier issued by the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), which had warned investors not to be swayed by fraudulent tips and stock recommendations promising high returns.
Issuing a public interest advertisement on 24 December, the ministry said it has the information to help people make educated decisions on IPOs. Investors can access this on the ministry’s website, and other investor-focused government websites.
The ministry said the information includes master data of companies, annual returns, balance sheets and other documents, details on directors, and a list of vanishing companies.
It said in order to get an overview of the company, investors should compare the financial results and performance of the company over the last 3-5 years.
“The decision should not be driven by sectoral boom alone,” it said, adding that a company’s performance does not necessarily relate to the sector or economic trend.
The ministry also recommended spreading investments across different IPOs and investing only after being convinced about the business model of the company.
“Do not place all your eggs in one basket. It is always wise to spread your investment across different companies/ IPOs/instruments,” the ministry said.
“Read the complete prospectus carefully even if it is time consuming, it will give an idea about risks and potential growth prospects,” it noted.
The BSE and NSE last week also asked the investors to remain alert and do a thorough evaluation before investing in any security.
They asked the investors not to “get misled by recommendations in newspapers, electronic media, websites.” “Do not get swayed by promises of high returns. Verify the tall claims made in such advertisements,” the alert said.
“Be careful about stocks that show a sudden spurt in price of trading activity without a change in the fundamentals of the company,” the NSE said while asking the investors to check its website for authentic price-volume data, financial and shareholding patterns of companies.
Investors were also advised to tread carefully before investing in equities and keep away from rumours and advertisements promising large returns, the alert said.