How to Apply For an IPO?
Initial Public Offering (IPO) is the process by which companies raise funds from the market. Businesses require funds for a variety of reasons like an expansion of the business, debt repayments, an exit strategy for early investors, etc. All these funding requirements can be met through an IPO. As an investor what you need to understand is how to apply for an IPO and, more importantly, how to do it online.
Steps To Apply for an IPO
You can bid for IPOs through the offline method or online methods:
- In the offline method, you need to fill out the physical form and submit it to the IPO banker or to your broker.
- In an online method, you can apply directly through your broker’s website or mobile application. The advantage of the online IPO is that most of your data is automatically populated from your trading or demat account thus reducing the clerical effort from your side. That largely simplifies the online IPO application form fill-up process.
How To Apply for an IPO Online Through Angel One?
- Login to the Angel One App or website and click on ‘IPO’ on the homepage.
- Select the IPO you are interested in.
- Go through the IPO details like maximum quantity, maximum investment, about the company, etc.
- Click on ‘Apply Now’ to apply and enter the number of lots and bidding price along with your UPI ID.
- Confirm your bid and accept the payment mandate sent to your UPI App for successfully completing the IPO application.
That’s it! Your IPO order is placed. You can check the status of your IPO in the ‘Order Book’ section.
Who Is Eligible To Invest in an IPO?
Technically speaking, any adult who is competent to enter into a legal contract is eligible to apply for the IPO of a company. Of course, it is essential that you have a PAN card issued by the Income Tax department and you also have a valid demat account. Remember, having a trading account is not necessary in the case of IPOs, a demat account alone is sufficient.
However, if you want to sell the shares on the listing then a trading account will be required. That is why brokers will advise you to open a trading account along with a Demat account when you apply for an IPO for the first time.
An important point to remember here is, when you apply for an IPO, it is not an offer but an invitation to offer. Once an investor submits a bid for an IPO, the company and underwriters review the bids received. The allotment process follows, where the number of shares to be allocated to each investor is determined based on various factors such as demand, subscription levels, and allocation rules.
Once the shares are allotted, the investor’s bank account is debited for the amount of shares allocated, and the shares are credited to the investor’s demat account. The investor becomes a shareholder of the company and can participate in its future growth and dividends.
New Offer vs Follow-on Public Offer vs Offer-For-Sale
While applying for an IPO, it is essential to know about a few related key terms that you might have come across:
- New Offer: If a company is raising funds from the IPO market for the first time and getting the stock listed, then it is a new offer. This offer leads to a listing and the expansion of the capital base of the company.
- Follow-on Public Offer (FPO): A company is already listed on the stock exchanges but is looking at the IPO market for raising additional funds.
- Offer-For-Sale (OFS): Here the existing promoters and anchor investors hive off part of their holdings through an IPO. Most of the disinvestments undertaken by the government are in the form of offers for sale. In an OFS, the share capital of the company does not increase but it is only the ownership pattern that changes. An OFS is often used by companies to also list the company in the bourses.
EMS IPO Youtube Link - https://youtu.be/Ja-0oMsR_9I
Types of IPO
There are two types of IPOs – Fixed Price IPOs and Book Built IPOs:
- Fixed Price IPO: Here the company fixes the IPO price in advance as the sum of the par value and the premium. You can only apply for the IPO at that price.
- Book Built Issue: The company will only provide an indicative price range for the IPO and the final price of the IPO will be discovered through the book-building process. Nowadays, most IPOs are predominantly through the book-building route only.
Under the book-built method, the basis of allotment is finalised within 10-12 days and the demat credit also happens within a couple of days after that. Once the shares are in your demat account and the stock is listed on the exchanges, you are free to sell the shares. As stated earlier, you need a trading account to sell these shares.
IPOs have three classes – Retail, HNI, and Institutional categories. Investments up to ₹2 lakh in an IPO are classified as retail investors. It is beneficial to invest in the retail quota because the allotment methodology is designed by SEBI to ensure that as many retail investors as possible get allotment. Thus, your chances of allotment are much higher in this case. In the case of HNIs, the allotment is proportionate while in the case of institutions, the allotment is discretionary.
Key Point To Remember While Applying for an IPO
There is a very important aspect you need to understand about applying for IPOs. SEBI has now made available a facility called the ASBA (Applications Supported by Blocked Amounts). The advantage of an ASBA IPO is that you do not have to issue a cheque or pay any money for the IPO till the allotment is made.
The amount to the extent of your application is blocked from your bank account and on the allotment day, the amount will be debited only to the extent of the shares allotted. That means if you applied for shares worth ₹1.50 lakh and you got an allotment for only ₹60,000, then only ₹60,000 gets debited from your account and the block on the remaining amount on your bank account is released.
Conclusion
Before applying for an IPO, it is crucial to evaluate the companies carefully and note the advantages and potential risks associated with them. As mentioned earlier, you need to hold a Demat account to apply for an IPO. Open a Demat account for free on Angel One and get started with your investment journey.
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By DS Trading Tech
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