Here’s All You Need to Know About the IPO Application Process
The first time that a private company wishes to go public, that is, issue its shares to the general public, it has to float an Initial Public Offering (IPO). After an IPO is subscribed to by members of the general public (retail investors and others), the company can get listed on an exchange so that its stock can be traded. An IPO can constitute an offer of the sale of shares by existing shareholders, a fresh or initial issue of shares, or a blend of both.
Subscribing to an IPO is a good way for investors to enter the domain of stock investing, especially if they research a company well and believe it has positive prospects. Nowadays, several investors can apply for an IPO as it comes out for subscription through online and offline methods, so there is no excuse not to invest. In this article, we delve into the IPO application process, the first step for getting shares through an IPO and getting your investment going!
How to Apply for an IPO Online
With digital channels opening up too many investors for their investment needs, it is easy and convenient to apply for an IPO online. You can even apply for an IPO through your smartphone. Most reputed brokers and banks list the IPOs that may be upcoming, and you may subscribe or apply through their websites. The simplest way to apply for an IPO online is through your broker or bank, provided you have the following facilities and requirements:
- Demat Account: Before you apply for an IPO, you may wish to open a Demat account online, with your broker or bank. In case you are allotted shares through an IPO, your Demat account is required to electronically hold the shares bought through the IPO.
- Trading Account: When you open a Demat account, you will also need a trading account linked to your Demat account. This is required in case you wish to make any transactions, like selling shares, for instance.
- UPI ID: This is necessary to block funds for the purchase of shares, in case you are allotted shares through an IPO.
How to apply for an IPO is easy once you have opened a Demat account with any broker or bank, that is, a depository participant (DP) registered with the Securities and Exchange Board of India (SEBI).
Key Steps to Apply for an IPO Online
Applying for an IPO is not complicated and anyone from a senior citizen to a new investor can do so in a hassle-free manner online. You may go through the steps mentioned below to apply for an IPO online:
- Step 1
Once you have chosen a reputed broker or bank to apply for an IPO online, visit the relevant broker’s or bank’s website.
- Step 2
Login to the trading platform of your bank or broker. You will likely find a list of upcoming IPOs or current IPOs open for subscription.
- Step 3
Select the IPO you wish to apply to. You will find an IPO application form that you will be required to fill out and submit online.
- Step 4
While filling out the online application, make sure you correctly enter the number of lots you want at the price you wish to pay.
- Step 5
Enter your UPI ID, then press “submit”. Your application with your bid will be recorded with the relevant exchange.
- Step 6
You will get a notification that funds must be blocked in your UPI app. Now you have to agree to the request to block the funds.
- Step 7
Once you have approved the funds to be blocked, the said amount will stand blocked in your bank account.
- Step 8
In case you are allotted your said shares through the IPO, the funds blocked in your bank account will be debited for payment of the shares. Meanwhile, the shares bought through the IPO will be deposited into your Demat account. In case you are allotted a lesser number of shares than what you bidded for, the remaining amount blocked will be unblocked in your bank account. Furthermore, if you are not allotted any shares, your entire blocked amount will be unblocked.
How to Apply for IPOs Offline
How to apply for an IPO is a stress-free process online. However, if you wish to apply for an IPO offline, you will find this process easy too. All you need to do is visit the Demat department of your bank or go to the office of your broker. You will have to fill out an application form with your details just as you would for an online application. However, here, the bank or your broker will upload your application to the exchange. It’s a must that your details are filled out correctly to prevent the rejection of your application.
Tips for Making Money in IPOs
There are some tactics that can be used to boost the success of your IPO subscription. If you wish to make money out of your IPO subscription, consider the following:
- In case an IPO is oversubscribed, shares are allotted to retail investors on the basis of a system that is like a lottery. Therefore, if you wish to increase your chances of share allotment and potential to make profits out of IPO-listed shares, you may consider having different family members apply for the same IPO. This increases your chances of share allotment as there is not a single investor applying for a bulk of shares.
- Another way to increase your chances of share allotment, and thereby potential for profit, is to bid at the IPO’s cut-off price, instead of a lower price. This means that you are prepared to purchase shares closer to the final decided price.
- Every IPO has a Grey Market Premium or the premium at which investors are ready to pay for the stock even before the company is listed. A high Grey Market Premium is indicative of a stock opening at a higher value (due to great demand) than which it was initially listed at.
- A good way to potentially make money from any IPO is to do your research well in advance so you know the company’s credentials and financial performance thoroughly.
Conclusion
Investment in an IPO could be a positive way to diversify your financial portfolio and spread your investment to different market sectors. For a new investor, IPOs may be a way to enter the world of stock investment. Yet other investors may see the growth potential of a company floating an IPO and invest, wanting to reap profits from the growth trajectory of the company. Whatever your reasons for investing in an IPO, you should know the process of investing and how investment should be aligned with your risk profile and personal goals.
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FAQ
What is the process of applying for an IPO?
The way to apply for an IPO constitutes a stepwise menu-driven process online after you log into your bank or broker’s website. You can also apply offline and fill up an application form and block funds to purchase IPO shares, just as you would do online. Besides filling in the IPO application form, an important part of the IPO process is block amounts in your bank account to pay for shares which may be allotted to you. This can be done easily if you have a UPI ID and you can block the amounts through your UPI app.
What are the steps to getting an IPO?
You can apply for an IPO both online and offline. The steps to getting an IPO online include first choosing the IPO you want to subscribe to, logging into your DP’s website (bank or broker), filling in an application form, and blocking funds in your bank account. Additionally, if you wish to apply offline, you will have to visit your bank or broker and physically apply by filling out an application form and blocking funds in your bank account. Once you are allotted shares through your said IPO application, either through an online or offline process, shares will be deposited in your Demat account. In case you fail to gain an allotment, your blocked amount will be unblocked in your bank account.
What is required for an IPO application?
You need to provide certain information for an IPO application. This information includes your personal details, bank account information, details of your Demat account, bidding details, application form, etc.