WHAT IS AN IPO ?

Initial Public Offer (IPO) is a way through which private firms go public and make their stocks available to the general public for investment. This application is made available in some assigned banks and in online mode for investors to bid. In the previous financial year, there were many IPOs that gave amazing results and since then, bidding for IPOs has become a popular trend. In this article, we will discuss the application procedure so that all the investors out there can learn how to invest in an IPO.

ELIGIBILITY FOR INVESTING IN IPOs

Any adult individual investor is permitted to invest or apply in the IPO of any company. Nevertheless, there are some more aspects an investor needs to meet. The eligibility criteria is as follows:

1. Investors should have a valid Demat account.
2. Investors applying for IPO should have a PAN card issued by the Income Tax authorities.
3. It is not necessary to have a trading account. But, if the investor is planning to sell the stocks on the day of listing, a trading account will be required.

TYPES OF INVESTORS WHO APPLY FOR IPO

The underwriters make decisions regarding the types of investors who can apply for the IPO of the entity. The broad types are as follows:

1. NII:
   These are Non Qualified Institutional Investors(NIIs) who apply for large value. This category includes NRIs, societies, firms, and trusts.
2. QIB:

These are Qualified Institutional Buyers(QIBs) means financial institutions that are registered with SEBI.

3. RII:

These are Retail Individual Investors(RIIs) who apply for a small value when compare to NII and QIB.

THE DETAILED 6 STEP PROCESS

Investing in IPO involves certain steps to ensure that they are on the right path. Proper knowledge of the following steps will assist an investor to apply in IPOs without facing any hurdles. Discussed below is the ideal and simplest IPO process in India that investors can follow.

Step 1: Do your research

The first and foremost step for investing in an IPO is to research and study the company that you want to apply for. An ideal way to get insights and information for going public is to go through the prospectus issued by the entity. Further, gather information and statistics about the company’s past performance and how it plans to invest the funds raised through IPO in the future. After understanding and gathering all the data and information, make a wise decision before investing. 

Step 2: Get your funds

After deciding the company for which you want to apply for IPO, the next step is to arrange the funds. Savings of the investors can be used to apply for an IPO as a good amount of funds is required because the shares can be bought only in lots. 
Lots mean the minimum number of shares that the entity offers in a single transaction. You can not go forward with buying one or two shares according to your will.

Step 3: Having a Demat & Trading Account 

Investors willing to apply for an IPO should compulsorily have a Demat account and this is the most significant prerequisite for investing in an IPO. If you don’t have one, you can open one with a bank, AMC, or online applications in a day’s time. Demat account facilitates the purchasing and selling of securities online. To open a Demat, certain documents like PAN, Aadhar, Identity proof among others are required.

Step 4: The Application Procedure

After opening a Demat-cum-trading account, you need to be well versed with ASBA i.e., Application Supported by Blocked Account. This is an application that enables the bank to block funds in the investor’s bank account. The ASBA application forms are available in physical as well as Demat form and you will need to specify your Demat number, PAN, bank, and bidding details in the application. 

Step 5: Bid for the lot:

Here, the investors are required to bid a price from the price range decided by the entity. In the range, the lower price is the floor price and the higher price is the cap price. Once this is done, the total amount is blocked in your bank until the allotment procedure is finished. 

Step 6: Allotment Procedure

Once all the above steps are completed, the final step is the allotment of shares. There are possibilities that you may get fewer shares than you demanded or no shares at all. This situation arises when the offer is oversubscribed. In this case, the banks will unlock the blocked amount in your bank account but if you get the full allotment, you will get a CAN (Confirmatory Allotment Note) within 6 working days from the closure of the issue.

Also Read :  NISM Mock Test conducted by National Institute of Securities Markets

WHY YOU SHOULD APPLY ONLINE ?

There are several reasons for the same. Let’s discuss:

1. The applicants get to bid online without any hindrance. The bidding process is easy and takes only a few minutes to accomplish.
2. Shares are automatically deposited in the Demat and refunds are also automated.
3. You can sell shares on a listing day is shared list at higher prices and book profits.

RISK ASSOCIATED WITH IPO APPLICATION

Like any other investment option, IPO also carries some risk. It may happen sometimes that data of the firm is not available for proper study and research and no investor knows the future performance of the company. Some of the firms are volatile and vulnerable as they are in the growth phase so don’t get into the trap of fake hype in the market. Do your own needful research and stick to the facts and figures. Check the reputation and background of the promoter and invest as per your risk appetite. 
Not all IPOs are gold mines and will give you mind-blowing gains. Some IPOs crash after all the hype and many investors face huge losses. So consult your financial advisor, study, and make a sound decision. 

WHERE TO FIND ABOUT UPCOMING IPOs ?

Many investors wonder how to get updates about the upcoming IPOs. ZFunds keep coming up with IPO details regularly along with all the analysis, research, and necessary aspects. The details regarding the upcoming IPOs or current IPOs can be found here.

Latest IPO List:

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MTAR Technologies Limited IPO