This article will provide a complete guide to retail investors on how to apply for IPOs in India through different channels (brokers, banks, UPI, etc.).
IPOs give retail investors an exciting opportunity to become part of a company’s growth story by investing in them. In recent years, retail investors in India have shown keen interest in IPOs driven basically by the potential for impressive returns. The article will walk you through the various methods of applying for an IPO, the requirements, and the tips for making the most of your investment. So, let’s start….
What is an IPO?
An IPO, or Initial Public Offering, is the process by which a private company offers its shares to the public for the first time. Going public helps the company to raise capital for expansion, paying off debts or monetizing investments. Once the IPO is complete, the company is listed on the exchanges, namely NSE and BSE and the shares of the company can be traded now.
Why Should You Consider Investing in an IPO?
Investing in an IPO has both potential rewards and risks. Here’s why IPOs might be appealing:
Opportunity for Early Investment: IPO allows you to buy shares in a company at a potentially lower price before it starts trading publicly.
Potential listing Gains: Few IPOs could generate substantial returns on the listing day itself, thereby offering quick returns to the investor.
Portfolio Diversification: Investing in various IPOs can help diversify your portfolio.
Transparency: Companies that go public (IPO) are required to follow stringent guidelines by SEBI (Securities and Exchange Board of India), this ensures transparency in financial disclosures.
Understanding the IPO Process
Let’s understand how the IPO process works.
- Company Decision: A private company decides to go public and appoints an investment bank to handle the IPO process.
- Draft Red Herring Prospectus (DRHP): The company files a DHRP with SEBI. The DHRP details the financial statements, business plans, risks, and other information of the company. It is made available on SEBI website for review and analysis by the public.
- Price Band and Lot Size: The company sets a price band for the shares (e.g., ₹100-₹120 per share) and defines the minimum lot size for the application (e.g., 24 shares).
- Subscription period: A subscription window is set, during this period investors can apply for the IPO. The subscription period is usually open for 3 to 5 days.
- Allotment and Listing: After the subscription period, the shares are allotted, and the company is listed on the stock exchanges, namely NSE, BSE, or both.
Prerequisites for Applying for an IPO
Before you apply for an IPO, you’ll need to have a few things in place:
- Demat Account: A demat account is required to hold the shares in an electronic form. You can open a demat account with a SEBI-registered broker. The allotted shared will be directly transferred to the demat account.
- Trading Account: Just like a demat account, a trading account could be opened with a SEBI-registered broker. A trading account facilitates the buying and selling of shares.
- PAN Card: A PAN Card is mandatory for all financial transactions in India, this includes applying for IPO.
- Bank Account: A bank account is linked to a Demat account. A bank account is required to transfer funds during the IPO application process.
- UPI ID (Optional): If you want to transfer funds through UPI, make sure the UPI ID is linked to the Bank account.
Different Channels to apply for an IPO in India
There are various channels available to retail investors in India to apply for an IPO.
SEBI Registered Brokers
Applying through a broker is the most convenient and widely used method. Here’s how the IPO process typically works.
- Step 1: Log in to your trading account either through a mobile app, web platform, or desktop platform. Make sure the trading and demat accounts are active.
- Step 2: Navigate to the “IPO Section” of the trading platform. Here you will find the list of ongoing and upcoming IPOs.
- Step 3: Choose the IPO you want to bid. Enter the number of shares you want to bid and the price.
- Step 4: Use the ASBA (Application Supported by Blocked Amount) feature provided by your broker. This feature blocks the required funds in your bank account till the time the allotment process in completed.
- Step 5: Submit your application. You’ll receive a confirmation via email or SMS once your application is accepted.
Applying Through Banks (ASBA Method)
ASBA is the most secure method to apply for IPOs, and its default method is recommended by SEBI for investors. Here’s how ASBA works.
- Step 1: Log in to your net banking account. Major Indian Banks offer ASBA facility. Look for the investment or IPO section.
- Step 2: Choose the IPO you want to invest in. Enter the bid price and the number of shares you want to buy.
- Step 3: Apply. The required amount will be blocked in your bank account until the allotment process is completed.
- Step 4: If the IPO allotment is successful, the shares will be transferred to your linked demat account and the blocked amount will be debited.
Applying Through UPI (Unified Payments Interface)
Although relatively new, UPI has become popular among retail investors for being fast and convenient. Here’s how you apply for an IPO using UPI.
- Step 1: Log in to your broker’s online trading platform
- Step 2: Choose the IPO you are interested in, and enter the bid price and the number of shares you want to buy. Select UPI as the payment method.
- Step 3: Provide the UPI ID, which is linked to your bank account.
- Step 4: A UPI mandate request will be sent to your UPI app (e.g., Google Pay, PhonePe, Paytm). Approve the mandate to block the amount.
- Step 5: If the shares are allotted the blocked amount will be debited from the bank account and the shares will be directly sent to your demat account. In case the shares are not allotted, then the blocked amount will be released and will be available in your bank account.
Understanding the IPO Allotment Process
Once the subscription period ends, the IPO allotment process begins. Here’s what happens next.
- Subscription Data: Based on the interest of the investors the subscription data is made available to the exchanges, NSE and BSE.
- Basis of Allotment: The allotment of shares is done on the basis of demand. If the IPO is oversubscribed (more applications than the shares available), the allotment is done by a lottery system to allocate shares to the retail investors.
- Allotment Status: The allotment status can be checked on the official registrar website, such as KFintech or Link Intime.
- Refunds: If an investor does not receive the allotment then the blocked amount is automatically unblocked and becomes available in the bank account.
- Listing Day: After the allotment, the shares are credited to the demat account of the successful applicant. The company then lists on the stock exchange and trading begins.
Common Mistakes to Avoid When Applying for an IPO
- Ignoring the Red Herring Prospectus: Although long and tedious, always read the company’s Red Herring Prospectus (RHP). It provides critical information about the business, financials, risks, and objectives of the IPO. Just don’t invest based on hype.
- Not Using the Cut-Off Price Option: Choosing the cut-off price indicates your willingness to pay the highest price within the price band, thereby improving your chances of allotment.
- Applying with Insufficient Funds: Always ensure that your bank account has sufficient funds to avoid rejection.
- Delaying the Application: Just don’t wait till the last day to apply, there could be technical glitches due to heavy load.
- Applying Through a Single Demat Account: If you have family members with a Demat account, consider applying through multiple accounts, to increase the chances of allotment.
Conclusion
Although applying for an IPO in India has become increasingly accessible due to mobile penetration and greater awareness. As with any investment, it is essential that you as an investor do thorough research, assess your financial goals, and understand the associated risk before applying for any IPO. Avoid hype, stay informed, make educated investments, and diversify your portfolio.
Happy investing, and may your IPO journey be profitable!
FAQs
What is an IPO?
An IPO (Initial Public Offering) is a process by which a private company offers its shares to the public for the first time. It gives investors a chance to be part of the company. Once the IPO process is completed the shares of the company are listed on the stock exchanges like NSE or BSE.
How can I apply for an IPO in India?
You can apply for an IPO through:
- SEBI-registered brokers by using their trading platforms (web, mobile, or desktop).
- ASBA (Application Supported by Blocked Amount) facility via your bank’s net banking.
- UPI-enabled payment platforms through your broker.
What is ASBA, and how does it work?
ASBA stands for Application Supported by Blocked Amount. In this process, the IPO application amount is blocked in the investor’s bank account until the IPO allotment process is completed. If the shares are allotted the amount is debited from the account, otherwise, in case of no allotment the amount is released.
Do I need a Demat account to apply for an IPO?
Yes, you require a Demat account to apply for an IPO. In case of successful allotment, the shares are directly credited to the bank account.
Can I apply for an IPO using UPI?
Yes, you can apply for an IPO using UPI by selecting it as the payment method on your broker’s trading platform. After bidding for the IPO, make sure that you approve the UPI mandate request sent to your UPI app to block the required funds.
How do I check my IPO allotment status?
You can check the allotment status on the registrar’s official website:
KFintech IPO Status
Link Intime IPO Status
What is a cut-off price, and why should I select it?
The cut-off price is the final price or the highest price within the price band for the IPO. Selecting this price indicates your willingness to pay the highest price, thereby improving your chances of allotment.
What happens if the IPO is oversubscribed?
If the IPO is oversubscribed, then shares are allocated via a lottery system for retail investors.
What happens if I don’t receive an allotment?
If you do not receive the allotment, the blocked amount in your bank account is released and becomes available for use.
Can I apply for an IPO through multiple demat accounts?
To increase the chances of getting the allotment you can apply through multiple family member’s Demat accounts. Please note each Demat account must be linked to a unique PAN card.
What should I do before applying for an IPO?
- Read the Draft Red Herring Prospectus (DHRP) of the company to understand the company’s financials and risks.
- Ensure your demat and bank accounts are active and linked.
- Make sure your bank account has sufficient funds.
Happy IPO Investing!
Related Information & Articles
Current & Upcoming IPOs in India
7 Secrets Behind IPO Over-Subscription
Should You Invest in an IPO? 6 Factors to Consider
What is Grey Market Premium & Kostak Rates?
