How to Apply for an IPO in India?

8 min read • Published 22 January 2023
Written by Piyush Mohta
Read on to know about IPO and how to apply for the same

Despite an underwhelming primary market around the world, India has witnessed a total of 138 IPOs till December 2022, including the $2.7 billion LIC IPO, the country’s largest public listing. This demonstrates that IPOs remain one of the best ways of raising capital and an attractive investment option even in a declining market.

If you are willing to invest in IPOs, this might be the best time to start strategising your investment approach. However, before investing in IPOs you must have a clear idea about the IPO process, and why it is important from a company’s and investor’s perspective.

The following sections will cover all you need to know about applying for IPOs in India.

What Is an IPO?

Businesses require substantial capital to maintain, grow, and sustain their operations. Therefore, to raise capital, bank loans may not always be enough or suitable. In that case, a company goes public or in simpler terms, allocates its ownership to the public in exchange for funds. 

When privately owned companies put their shares to the public for the first time, they go through a process called an Initial Public Offering (IPO) and get their shares listed on stock exchanges. After this, investors can buy and sell the company’s shares freely on the secondary market.

During the IPO process, many good companies offer their shares at a decent valuation. So, this is a good chance for you as an investor to accumulate those shares at the right price. Meanwhile, listed companies get to raise adequate capital for expansion or Research and Development (R&D).

Why Are IPOs launched?

IPO allows companies to sell a part of their ownership to the public in return for capital. Ventures can use this capital to clear outstanding debts, expand the business, grow inventory, and reimburse corporate expenses. In exchange, investors get to invest in an emerging company and benefit from its growth.

A well-performing company may earn investors stable and growing returns. When this happens, early investors can book massive profits by selling their holdings on stock exchanges. Some companies also offer a part of their profits as dividends to shareholders. 

In this way, the symbiotic relationship prevails. The more profit a company generates, the more people buy its shares, which increases its share price. However, the stock market is subject to market risk, and therefore, an investor may have to bear losses as well.

How to Apply for an IPO Online?

Here are the steps to apply for an IPO online:

  • Step 1: Select a reputed online brokerage platform, which offers all the required services.
  • Step 2: Upload all the necessary details and documents including the mandatory PAN, and address proof.
  • Step 3: After completing the registration process, log in to your account and go to the IPO section. Decide your budget and then calculate the lots accordingly.
  • Step 4: Now you can bid for IPOs. To increase your IPO allotment chances, you can apply from different accounts linked with different PAN numbers of your friends or family.
  • Step 5: Provide your UPI ID, to trigger a transaction request on your UPI app and pay for the applied lots.
  • Step 6: The capital will remain blocked until the allotment. The funds will be deducted only if the shares are allotted to you; otherwise, the remaining funds will be unblocked and refunded.

How to Apply for IPO Offline?

Following are the steps to apply for an IPO via the offline method:

  • Step 1: Visit the nearest branch of a brokerage firm or a bank and submit an IPO application.
  • Step 2: Fill in the necessary details, and remember to fill out the Application Supported by Blocked Amount (ASBA) form.
  • Step 3: Complete the KYC formalities.
  • Step 4: After executing the transaction, the required funds will be blocked, and will only be debited if you receive the allotment. Furthermore, if you don’t receive the allotment then outstanding funds will be unlocked so that you can use them elsewhere. 

Benefits of Applying for IPO Online

Applying for an IPO online saves a lot of time and effort, which you would have to spend in the case of an offline application. Furthermore, online trading is more secure and allows you to subscribe as soon as the IPO is open. So, it is hassle-free compared to offline mode.

Moreover, the funds are blocked and will not be deducted from your account, and interest will still accrue.

Eligibility Criteria for IPOs

The eligibility criteria for applying for an IPO are as follows:

  • Only Securities and Exchange Board of India (SEBI)-approved investors can participate in IPO, these investors are categorised as Qualified Institutional Buyers (QIB), Non-Institutional Buyers (NII), Retail Individual Investors, and Employees.
  • The investor must have a valid PAN card.
  • A Demat and a trading account are necessary.
  • Investors must have an active bank account connected to the broker.
  • Investors have to maintain a sufficient balance in their bank accounts to facilitate transactions.

What Are Demat and Trading Accounts?

A Demat account acts as a repository for securities like, shares, bonds, and other financial instruments. However, you can not purchase or sell these instruments through a Demat account. To do so, you will require a trading account.

Trading accounts allow investors to execute transactions, and get their Demat and bank accounts credited or debited accordingly. Therefore, investors need to link their primary bank account to their trading account to facilitate transactions.

How to Choose the Right IPO?

Here are some factors which you may consider before applying for an IPO:

  • Determine Your Objective

As an investor, you must have a motive behind investing in an IPO. These objectives may be short-term like buying a vehicle and going on a vacation or long-term like building wealth for retirement. Therefore, you must choose IPOs with the returns potential and risks suitable for your financial goals. You may choose to book profits on the listing day for your short-term goals.

  • Do Enough Market Research

To find the right IPO, you must have a sound knowledge of how the stock market operates, and the techniques to analyse a company. You also need to analyse the products/services that a company offers so that you can determine its future prospects and most importantly its competitive advantage.

Financial ratios like the Price-to-Earning ratio, Price-to-Sales ratio, Debt to Equity ratio, etc. can help you find decent companies. You can check these parameters in the Draft Red Herring Prospectus (DRHP).

  • Determine Your Risk Apettite

When investing in IPOs, you must have a set budget allocated so that your financial situation is not adversely affected by an unfavourable outcome. Consider your financial capability and your tolerance for loss. Having a chalked-out budget can help you decide whether or not to invest in various IPOs.

Highly volatile shares gain and lose market value rapidly, leaving investors with minimal time to withdraw or invest, unlike defensive stocks. High-volatile shares are more prevalent among emerging industries. 

Therefore, one should thoroughly go through a company’s business, and data supporting the company’s prospects, and only invest in good companies at a decent valuation.

Final Word

Investors should thoroughly go through a broker’s services, and only choose a brokerage service that is SEBI authorised, to eliminate any discrepancies or disputes. With proper research, risk appetite, and a sound understanding of the industry, you can choose good IPOs that can help you with your financial goals. 

Frequently Asked Questions

What is ASBA?

Application Supported by Blocked Amount (ASBA) is a feature for IPOs devised by the Security Exchange Board of India (SEBI). It is designed to keep the investors’ funds safe and efficient. It does not allow funds to be debited from an investor’s savings account until the shares are allotted. ASBA has the authority to lock the required amount to avoid any discrepancy due to low funds.

Does my blocked amount get debited without share allotment? 

No, suppose you purchased shares worth ₹1 lakh, the same amount will remain blocked in your account. You will not be able to use it until the allotments are executed. However, the amount would still be calculated for interest from the bank.

Are IPO investments taxable?

Shares from IPOs are taxed just like any equity investment. Long-term capital gains (LTCG) are taxable at a 10% rate for profits above ₹1 lakh, whereas short-term capital gains (STCG) are taxed at 15%.

What are long-term and short-term equity investments?

Equity investments for more than a year are considered long-term investments, whereas equity investments for less than a year are considered short-term investments. 

Was this helpful?

Piyush Mohta

Credit Principal
CA with 10+ years of experience in Banking in SME and wholesale/start-up lending. Previously worked with UC inclusive, TATA capital, Kotak Bank. Underwritten/Managed loan book of 2500 Cr+

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