How to Bid for an IPO – Tips and Tricks

An Initial Public Offering (IPO) is the process through which a company issues its shares to the public for the first time. If you’re planning on investing in an IPO of a company, you need to first know how IPO bidding works. This will help you make a better and more informed investment decision. But before we go ahead and take a look at how to bid in an IPO, let’s take a look at the different kinds of Initial Public Offerings that you’re likely to encounter in the Indian stock market.

Are All IPOs the Same?

No. Not all IPOs are the same. Initial Public Offerings are classified into two types - book-built IPO and fixed-price IPO - depending on the pricing method adopted by the company.

• Book-Built IPO

  In this type of IPO, the price at which the shares are to be issued to the public is discovered using the book-building process. The company provides investors with a price range. The lowest price in the range is known as the floor price, whereas the highest price is known as the cap price. Based on the number of bids received, the company sets the cut-off price. Only those investors who bid on or above the cut-off price are eligible for allotment of shares.

• Fixed-Price IPO

  In a fixed-price IPO, however, the company sets a single specific price. Unlike a book-built IPO, there’s no bidding process in a fixed-price IPO. Investors desirous of subscribing to the company’s shares are required to apply at the specified IPO price.

How to Bid for IPO: The Basics

It is important to get the basics right before you learn how to bid in an IPO. One of the most important prerequisites for investing in an Initial Public Offering is the demat account. Without an active demat account, you cannot invest in the Indian stock market, let alone an IPO.

To open a demat account, all you need to do is reach out to a reputed Depository Participant (DP) such as Mirae Asset Capital Markets (India) Private Limited. Once you open an account, you can then proceed to apply for an IPO.

Additionally, you would also need a bank account since the IPO application process in India follows the ASBA (Application Supported by Blocked Amount) protocol. When you apply for an IPO, the respective amount in your bank account is blocked temporarily till the time of allotment. If the shares are allotted to you, the blocked amount is automatically debited from your account. If you don't get the shares allotted, the blocked funds are released and made available to you.

Read Also: Top 10 IPO Investment Tips and Strategies

The Bidding Process

Now that you’re aware of the basics let’s take a look at how to bid for an IPO. There are four key things that you need to keep in mind when applying for an IPO. Let’s take an in-depth look at each one of them.

• How Much to Bid?

  You can only apply for an IPO in lots. The company, along with its Book Running Lead Managers (BRLMs), set the minimum lot size. For instance, if the lot size is 100 shares, you would have to bid for a minimum of 1 lot (100 shares) or in multiples thereof.
  Also, there’s another major factor you need to consider. There are three categories of IPO investors - retail investors, non-institutional investors (NIIs) and Qualified Institutional Buyers (QIBs). Applying under the retail category is often ideal since the chances of getting shares allotted to you are higher.
  However, to apply under the retail category, your total bid value should not exceed ₹2 lakhs. If you plan on bidding for more than ₹2 lakhs worth of shares, you can only do so under the non-institutional investor (NII) category.

• Where to Bid?

  You can bid for an IPO online through your stockbroker’s trading portal. Alternatively, some scheduled commercial banks enable you to apply for an IPO online through their Internet banking portal as well. On the other hand, you may also subscribe to a public issue offline by submitting a filled IPO application form at any of the specified bank branches or your stockbroker’s branch.

• What Price to Bid At?

  Bidding for an IPO at the right price is very important. Here’s one of the best IPO tips and tricks that you can use. Always place your bids at the cut-off price. As you’ve already seen above, companies will only consider bids that are on or above the cut-off price. Therefore, by placing your bids at the cut-off price, you can increase the chances of getting allotted.

• How to Bid Online?

  Now that you’ve seen a couple of IPO tips, let’s take a look at how to bid for an IPO online.
  • Step 1: Log into your stockbroker’s trading portal.
  • Step 2: Navigate to the IPO section of the portal.
  • Step 3: Choose the public issue that you would like to invest in.
  • Step 4: Enter the details of the IPO, such as the number of lots you wish to apply for and the price. Remember to select the ‘cut-off price’ option to increase the chances of allotment.
  • Step 5: Complete the UPI mandate registration process.
  • Step 6: Submit the IPO application.

Keep in mind that the steps outlined above are only meant to be illustrative. The process flow may vary slightly depending on the stockbroker you’re associated with.

IPO Bidding Aftermath - Understanding IPO Allocation

It is worth noting that the IPOs, by their nature, attract many people and this can lead to a competitive bidding process. The inability to get shares, especially in the case of a highly anticipated IPO often occurs due to high demand compared with supply.

So as a result, you may end up getting less or no shares at all contrary to what you expected while making your bid for IPO. In such cases of non-allotment, the bank refunds the amount placed into the bid.

Therefore, coping after an IPO bid requires one to be patient and have a good understanding of market dynamics. It can be frustrating when fewer or no shares are received than expected; but it’s normal in IPO investing. Therefore, maintaining a diversified investment approach would help protect against allocation outcomes.

Conclusion

Now that you know how to bid for an IPO, make sure to use this knowledge the next time you apply for one. That said, make sure to first open a trading and Demat account before you proceed to invest in the Indian stock market.

m.Stock offers a robust trading and Demat account with zero brokerage trades for life. Thanks to a super-fast and paperless onboarding process, you can have your account open in no time. Furthermore, with m.Stock, you can apply for all the latest public issues through a seamless and secure 1-click process.

Read Also: How to check IPO Allotment Status?