How to Invest in an IPO (Initial Public Offering)?

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IPO

An IPO or Initial Public Offering (full form) is a process through which investors can subscribe to the shares of the company before it is introduced in the market. The IPO is a smart move to invest in the market with a company with the potential to grow at the lowest price it will be available.

Some recent IPOs have been oversubscribed by almost 1.93 times on Day 2. This depicts the heavy demand for the shares in the market. This is not irregular as IPOs are one of the ways to make quick money in the stock market. Let’s discuss further how one can invest in IPO:

Choose and Pick:

The very first step is to select the IPO that you want to subscribe to. A simple and appropriate way to decide is to study the prospectus of the company. One can easily find them on SEBI’s (Securities and Exchange Board of India) website. The prospectus gives a true and fair view of the company’s plans and its approach towards the market.

Arrangement of Funds:

When you decide to invest in a particular IPO, the next step is to arrange funds for it. The savings can be used to invest in an IPO and if you don’t want to have enough savings for the IPO purchase you can avail the loans from banks and NBFCs at a specific interest rate. The interest rates differ from bank to bank.

Open Demat Account:

The basic requirement to apply for the IPO is to open Demat account online. A Demat account is simply a space to store your financial securities in the electronic form. It can be easily opened with the help of a broker. The documents required for opening a Demat account are bank statements, Aadhar card, and PAN card.

Application Process for IPO:

Once your trading or Demat account is activated, you must be aware of the ASBA facility i.e. Application Supported by Blocked Amount which is the basic requirement for IPO subscriptions. The ASBA facility is the form of application that allows banks to block funds in your bank account. The ASBA facility can be availed physically or in the Demat form. This facility reduces the demand for cheques and demand drafts. One only requires the PAN, bank account number, and Demat account number and most important bidding details.

Bid:

The most important step is to bid while applying for the IPO as per the lot size stated in the prospectus of the company. Lot size means the minimum number of shares one needs to apply for during an IPO. Specifically, the applicant needs to take care of the bid price as well. The company decides the ceiling price as well. The upper limit is called cap price and the lower limit is called floor price. An applicant has to bid for stocks in these limits only. The amount is required while bidding. The amount keeps in the bank account and yields interest till the allotment period.

Allotment for IPO:

As mentioned above the case of oversubscription there are chances that applicants may get fewer shares as compared to the applied ones. However, in such a case the bank will unlock the bid money (partially or fully). There might be a case that an applicant gets the full allotment and receives a Confirmatory Allotment Note (CAN) in the six working days after the procedure of IPO closes. The process is also known as the book-building issue. As soon as the shares are allotted, the shares will be credited in your Demat account. The final step is the listing of shares in the stock exchange and this is done within 7 days from the issue finalization.