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How To Invest In IPO

How To Invest In An IPO

IPO has become the buzzword for today's generation! Even the youth is being involved in the stock market, and IPOs have become a trend nowadays.

Not only this, but in the Indian Financial markets, IPOs are nothing less than an Indian-Pakistan cricket match. The hype and the pressure revolving around IPO in the market make people go crazy. It's all because IPOs can bring in great returns to investors. But the question is, how to invest in IPO? So, let's answer this in detail.

What is an IPO?

The question 'what is IPO' may sound quite scary for some as they don't know how to invest in an IPO, and for some, it is quite enticing as it means more money on their investment. So, let's bust this myth and understand what it is!

Let's start with the full form of the IPO!

The IPO full form is Initial Public Offering is when a private limited company goes public by issuing shares to the general public. The issuer is the company offering its shares to the public; however, it is done with the guidance of several investment banks. Companies go for IPOs to raise money for any number of reasons. Post-IPO, the shares are available in the open market to be traded.

How does IPO work?

Often, some investors are more focused on what IPO to go for, and for some curious people, 'how IPO works' is an intriguing question.

Let's understand the Process of IPO:

  • A private company wants to raise capital, so the company chooses to IPO.
  • The company contracts an underwriter, usually multiple investment banks, to assess the company's financial needs and determine the price/price band of shares, number of shares to be offered and more.
  • After that, the underwriter drafts the application to SEBI for approval with details of the company's past financial records, which include profits, debts/liabilities, assets and net worth. Along with how the funds are to be raised.
  • Then, SEBI scrutinizes the application and ensures that all eligibility norms are met. It gives the company the get-go to release the 'red herring prospectus' (document released by the issuer mentioning the number of shares and issue price of each share to be offered in the IPO).
  • Then, the company's executives travel to meet and convince potential investors to buy their company's shares.
  • An open IPO can last for 3-21 days; generally, it is open for 5 days.
  • Retail investors can bid for stocks through their banks/brokerages online during this duration.
  • Investors must have a Demat account to participate in an IPO and a PAN card.

If the stocks you bid for are allotted to you, you will find them credited in your Demat account; if not, you will get your money back.


What are the benefits of investing in an IPO?

  1. Get in on the action while the pitch is being prepared: When you invest in an IPO, you are entering the company's ground floor. Also, the IPO may prove to be your window to rapid profit in a short duration, or it can also help you grow your wealth in the long run.
  2. Meet long-term goals: IPO investments have growth potential in the long run. The amount earned can help the investors meet their long-term financial goals.
  3. Price transparency: The price per share is mentioned in the IPO order document, so the retail investors have the same information as the big sharks. The price change only happens post IPO and would depend on the changing market rates. So, applying for an IPO is far better than buying regular equity stock.
  4. Buy for less and make it big: Often, the IPO price is the lowest if you invest in a small company with a high potential to grow.


Is IPO safe or not?

Every retail investor or anyone investing for the first time is bothered with the question, 'is IPO safe'?

Well, investing your money in an IPO is 100% safe, but you need to make sure that you pay attention to minute details. Ensure to read the DRHP as it has all the company's details.


How to invest in an IPO?

A long time back, acquiring shares in an IPO was troublesome as nothing was clear and organized. But now, everything is crisp and clear whether you do it online or offline.

Here's the answer to how to invest in IPO:

  • Step 1: You may get the physical form from a broker/distributor/branch, or you can do so online as well.
  • Step 2: You need to fill in the details in the form, such as personal, bank and Demat account details.
  • Step 3: You need to provide your total investment amount,
  • Step 4: The shares will be allotted within 10 days from the closing date; if not, the money will be sent to your bank account.

Requirements to invest in an IPO

The requirements to invest in an IPO are quite low and simple. What you need to have are trading and Demat accounts.

Any investor willing to apply for an IPO needs to have a Demat account as a Demat account lets the investor buy and sell shares online.

However, if you don't have a Demat account, you need to open a Demat account. You will need a few documents like Aadhar Card, PAN card, Address and Identity proofs.

Can I Apply for an IPO Without a Demat Account?

Recently the stock market has taken a huge shift seeing many new and young investors. As a new investor, you may have this question on your mind 'can I apply for an IPO without a Demat account?

'Yes'; however, it is recommended to open a Demat account first.

Here's the process of applying for an IPO without a Demat account:

  1. Connect with a stockbroker to open a Demat account.
  2. Submit all the required documents such as PAN, photographs, and address proof, and pay the opening fee.
  3. Get a DP ID from your broker and use this DP ID to apply for an IPO, but make sure to skip the 'beneficiary account number' section on the application.
  4. After you have applied, the amount of money for the IPO will be blocked through ASBA (Application Support by Blocked Amount) process in your account.
  5. The beneficiary account number omission will be notified to you by the registrar at the allotment time. However, you will have received your real beneficiary account number by now.
  6. You can then correspond with the registrar to rectify the omission, and then the shares will be credited to your account.
  7. You can even 'rent' a Demat account from investors not planning to apply for the IPO you want to apply for, and later you can have these shares credited to your Demat account.

How to Apply for IPO Online?

Most stockbrokers allow investors to apply for an IPO through their trading platforms. However, there are certain things to keep in mind before going forward with the IPO application process.

  1. You need a Demat account to receive the allotted shares and trade them.
  2. A trading account
  3. A bank account to process all payments.
  4. If you do not have a Demat and trading account already, you need to open it, and for that, you need an Aadhar card linked to your mobile number and a PAN card.

How to apply for an IPO online may slightly vary for each trading platform, but here's the common process using internet banking.

  1. Login to the internet banking account.
  2. Look for the ASBA (Application Supported by Blocked Amount) tab.
  3. Then click on the 'IPO' or 'Apply IPO' tab and select the IPO from the list.
  4. Then enter the applicant name, PAN details, and bid quantity and click on submit.

Is ASBA Mandatory for IPO?

To understand this, let's first understand what ASBA is? It means the Application Supported by Blocked Amount. When investors apply for an IPO, the amount is not debited from their account until the allotment of shares; instead, it is just blocked.

If the shares are allotted to the investor, the amount is debited from the account. If the shares are not allotted to the investor, the amount is credited to the bank account. Therefore there is no loss in applying for an IPO.

Moreover, on January 1, SEBI made it compulsory for all investors to apply through the ASBA. Since this, all IPOs are applied through the ASBA process.  


How to apply for an IPO through ASBA?

You are free to choose the online or offline mode of the application according to your convenience, but you need to understand that ASBA is mandatory for IPO.

If you want to know how to apply for IPO through ASBA, here are the steps:

  • Login to your net banking account; for a better experience, you can use the Jiffy trading app by Choice India.
  • Look for an IPO application; you'll see a complete list of all the open IPOs; choose the IPO from the list.
  • Now enter the required details such as price, quantity and your UPI ID.
  • Then click on 'Apply Now', and post that you will receive a mandate to block the desired amount in your bank account.  
  • Post verification, ASBA will block the amount in your bank account.

You can apply for an IPO offline through the following process:  

  • Register as a new user on the NSE website
  • Enter required details such as basic details (name and address) and PAN card number to get your User ID and Password.
  • Download the ASBA form, fill in all the details required, and submit it to the nearest self-certified syndicate branch or your stockbroker.
  • Submit the required identity proofs along with the cheque for the desired amount.

After verification, ASBA will block the desired amount from your account, and your application process will be complete.


How to check IPO Allotment status?

Just like applying for an IPO is easy, checking your allotment status is also quite easy. Let's see how to check IPO allotment status:

To check the allotment status of an IPO, you must check on the official website of the registrar of that particular company. You will have to check the IPO allotment section available on the website.
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