ETFs that are exchange traded funds tracking different underlying securities including gold, equity, debt etc. also have another class i.e. IPO ETF. This ETF tracks the Initial Public Offerings or IPOs of various companies that have come up with an IPO issue and have alongside got listed recently on the bourses.
How good is an investment in IPO ETF?
With an underlying being the IPOs of several companies that have recently come up in the market to mop up funds, the investment avenue gives an opportunity to the investor to diversify his portfolio across IPOs and hence be able to realize higher returns from IPOs of different companies across industry verticals.
So, it is in fact a better deal against investing in each of the company IPO in which there is no certainty whether or not the subscriber shall be issued the units or not.
But, as the portfolio of such an ETF is churned not quite often, associated charges to be borne by the investor are not high. Also, with exposure in IPOs of companies of different verticals as and when IPOs are being introduced in the market, investors risk and return is lowered and increased respectively at the same time.
Nonetheless, the new investment option comes with few of the downsides as performance of the IPO ETF is in line with the broader stock market.
And being a novel product to trade in, not much of data and information is available for wisely zeroing on the best available option.
Also, portfolio churning that is done on a quarter on a quarter basis shall fail to include IPOs of companies that are faring well. So, for first-time investors in IPO, the option seems good as the IPO ETF i.e. an instrument providing exposure to a pool of IPOs is less risky.
Nonetheless, investor needs to be careful as to in which company IPOs, the ETF is making an investment, as sometimes fund managers may make a wrong bet.