How IPO Works?

As soon as a company announces its IPO in public, investors get excited about the returns. If it’s an IPO, it is believed that it will always result in comparatively good profits, but do you as an investor know how IPO works?

If not, don’t worry. Here in this article, we’ll learn about IPO, especially its work mechanism in the stock market.

Let’s get started by first understanding its meaning.

IPO Meaning

IPO full form is  Initial Public Offerings, i.e. the way where the companies list their shares in the stock exchange to make it available for investors to invest in IPO and reap the benefit of the share market investment.

In short, it is the first step of a company towards share market space.

Now here is another question of why the company goes public?

Well! Simply to raise funds to meet their different objectives like:

• Growth
• Raising capital
• Providing liquidity to company founders
• To reap the benefit of higher valuation
• Clearing debt

With specific objectives and to increase brand awareness, an IPO makes the company more reliable and at the same time brings in the opportunity for the investors to make the best profit out of their investment.

But when it comes to investors, is IPO safe or not? For this let’s first understand its process in the Indian share market.

How IPO Works in India?

IPO works in a different way for the company that files it and for the investors who are going to apply for it.

To understand this, let’s take an example:

Let’s say you are running a private coaching center and now seeing its growth you are thinking of converting it into a registered educational institute.

For this, you need to do certain documentation for affiliation from the central or state board. Apart from this, you need to discuss the current plan, your past performance, and the future strategies of your education institute that are going to benefit students.

On the other hand, comes the part of students who are looking for the new way and option to improve their knowledge and learnings.

These students on finding this new platform attractive start applying for admission, but the educational institute comes up with certain criteria and cut-off scores of students to provide admission in different courses.

This brings in the opportunity for the educational institute to grow more and work towards its expansion.

Only a few students thus would be able to reap the benefit of availing of the education and benefit from this new institute.

Now coming back to the stock market IPO.

The IPO is where the companies get ready to raise funds through listing in the stock exchange and the investors on the other hand look for the potential opportunity that the IPO brings for them to earn profit and listing gains.

This is how IPO works in India?

To provide you with better detail here is the information provided below:

How IPO Works for Investors?

Talking about the investors, the IPO works simply as an application process. As mentioned in the example above, the new institute brings in the opportunity for students to try the new and innovative ways of education but to grab this they need to apply for admission.

Similarly to get an IPO, investors need to apply for the same using different portals and the price band provided to them and on the allotment, they can reap the benefit of listing gains and other advantages associated with IPO investment in India.

Let’s now see how you can apply for the IPO in India?

How to Apply for IPO?

With growing technology, applying for an IPO has become a piece of cake. All you need to have is the Demat account. You can open a Demat account with Choice with a few simple steps.

There are various people who also wonder if they can apply for IPO without a demat account, but that is legally not possible. Using the trading platform, you can directly apply for an IPO through the ASBA method.

How to Apply for IPO through ASBA?

Many investors still think that is ASBA mandatory for IPO? Also, they are unaware of the whole process.

To help with the same, the ASBA process is made compulsory for investors investing in book-build IPO.

Further, as per its meaning, it is an Application Supported by the Blocked Amount make it extra secure for the applicants to invest securely.

Let’s now learn how to apply for IPO through ASBA:

• First, log in to your demat account
• Go to the IPO section on the interface
• You’ll find the list of new IPOs  along with the upcoming IPOs
• Next, you’ll need to pick the IPO you wish to invest in.
• As you click on the IPO, your application interface will open.
• Fill in the details such as quantity, the price at which you wish to bid.
• You do get a choice to place multiple bids to boost your chances of allotment.
• Mention your UPI id for transaction, post which on your screen you’ll see the amount that you need to have in your bank account

Now please note that under ASBA, this amount gets blocked in your account, and when the lot is allotted, only then does the amount gets deducted, else this gets refunded in your account, or say the amount gets unblocked.

• Further, you’ll be asked to review your order and then confirm it.

Also, to make your transaction hassle-free, you definitely should use the most secured mode of payment which is nothing but the UPI payment gateway.

ASBA E-Form

Now the online method is not suitable for everyone. So to solve this problem, you can also apply for an IPO offline, using the ASBA e-form. So let us quickly have a look at how you can do that.

• You need to register as a new user on the NSE website. It is a one-time registration and after that, you can apply for multiple IPOs.
• Now you can download the ASBA form and fill in the necessary details. This form is available for download 2 days prior to the opening of an IPO.
• You now need to submit the form to your bank or nearest stockbroker with a canceled cheque and desired documents like your PAN Card and Aadhar card.

The desired amount gets blocked in your account after the successful submission of the application.

How to Check IPO Allotment Status?

Usually, you can check your IPO application status directly on the BSE or NSE website based on the IPO.

Click on the “Application status check”

A new interface will be in front of you asking for details such as issue type, issue name, application number and PAN number.

Finally, click on “SEARCH” and you’ll be able to see your application status. Meaning if the lot is allotted to you or not you can easily find it on either website.

IPO Listing Gains

After you get an allotment of the shares, you can earn instant profit on IPO listing.

How?

For this let’s check for an example:

Recently the Paras Defense IPO was announced with a price band of ₹170-₹175. Now the IPO was oversubscribed and get listed at ₹469 thus providing the benefit of 170% to the investors who applied for it and get the allotment of shares.

This is how you can reap the benefit of applying for the IPO and reaping the best benefit in the form of listing gains.

Conclusion

So you see, it is very easy to understand the entire process of an IPO, yet one should be aware of their own financial goals before actually investing in your capital. Looking at its profit and benefits, it is the best way of investment for those who are looking for a way of how to start stock market investment?

The certain points that an investor should keep in mind are as follows.

• Whenever any organization announces its IPO, always check for its objective, along with the financial reports, this will help in understanding the reliability and sustainability of the organization.
• Always pre-define your investment capital to understand affordability as per the price band of the IPO.
• Never miss out on the IPO details such as the issue price, OFS, and even fresh issues.

Once you are well aware of your investment strategy along with your expected returns, you may positively move forward with the IPO.

If you are willing to invest in an IPO, open a Demat account today!