New Delhi, Dec. 24: The government has asked investors who plan to apply for shares during initial public offerings of various companies to check promoters track records and regulatory compliances.
Investors should verify the track record of the company and its promoters, their compliance status with various regulations and whether any of its officers had been found guilty of economic offence, the ministry of corporate affairs said through an advertisement.
The ministry has set up a helpline with money from the investor protection fund. Small investors can contact the helpline to seek guidance.
Not long ago, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) had issued similar warnings to investors to avoid being swayed by fraudulent tips and stock recommendations promising high returns.
Investors can also access information through the ministry's website and other investor-focused websites.
Arvind Mahajan, executive director of KPMG, said it was good that the government was making efforts to sensitise the investor. The market has been doing well and this is luring a number of investors to IPOs.
Small investors should be cautious in entering the market as they can lose money too. Research about the company is very important as in a downslide, firms which are not fundamentally strong would bear the brunt, he said.
The ministrys website contains master data of companies, annual returns, balance sheets and other documents, details on directors and a list of vanishing companies.
To get an overview of the company, investors should compare the financial results and performance of the company over the last three to five years.
The decision should not be driven by sectoral boom alone, it said, adding that a company's performance did 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 the risks and the potential growth prospects, it noted.