An Initial Public Offering (IPO) is when a company lists its ownership to the public for the first time in exchange for funds. The Security and Exchange Board of India (SEBI) is responsible for regulating the IPO process.
To start investing in shares listed on an IPO, you need to apply for a subscription through a broker or a bank. However, you will need to fulfil several eligibility criteria and have access to a Demat account for storage, and a trading account to facilitate transactions. Please note that although IPOs can be profitable, you should always research them before investing, to avoid financial loss.
The section below can help you learn about IPO application methods..
What Is an IPO?
Running a business requires a lot of fundings and capital. That’s when companies can opt for an IPO, which can help them raise capital from the public by allotting a part of its ownership per unit share.
Private companies cannot directly sell shares to the public, and their equity is divided among private investors, stakeholders and employees. However, when private companies require additional funds for business, rather than relying on debt, they can list as public companies via an IPO.
How to Apply for an IPO through Internet Banking and ASBA?
One of the easiest ways to apply for an IPO is through internet banking via ASBA. It only takes a couple of minutes and ensures speedy refunds in case the shares are not allotted to you.
Hence, before you learn how to apply for an IPO via internet banking, understand the meaning of ASBA.
Application Supported by Blocked Amount (ASBA) is a modern system introduced to reduce confusion and delay in the IPO application process through banks. All banks participating in the ASBA application procedure involve holding the entire amount of money investors contribute to an IPO until the shares are distributed.
If an investor receives fewer shares than the number of shares they subscribed for, the bank releases the leftover funds. Moreover, funds blocked via ASBA accumulate interest during the application period. After SEBI introduced the ASBA facility, it should reassure you that the refund cycle will freeze your extra money. While subscribing for an IPO will only take the sum corresponding to the given shares from your account.
Earlier, this entire process was unnecessarily long and wasted time and resources of all involved participants until ASBA implementation. Thus, while applying for an IPO, ensure that your bank has an ASBA facility to make your process easier and more effective.
Applying for an IPO through Internet Banking
Firstly, ensure that your bank account has internet banking enabled before you apply for an IPO. Then, once it is done, follow the process given below to apply for an IPO:
Step 1: Log into your internet banking page.
Step 2: Search for the ASBA application option and click on it.
Step 3: Select Apply IPO from the given service options and select your choice of IPO along with the quantity of shares and the price at which you would like to purchase.
Step 4: Enter the required details like your name, PAN details, etc., and complete the application process.
Step 5: Once the application is submitted, the bank blocks the amount corresponding to your bid.
Step 6: The banks forward the application to the stock exchange. If the bids are accepted, an application number is sent to the bank who informs the investor of their successful bid.
Step 7: After the end of the bidding session, the stock exchange shares the bidder’s details to the registrar, who transfers the purchased shares to the investor’s Demat account.
In case, when only a few shares are allocated to the investors, the corresponding share prices are deducted and the remaining funds are unblocked.
However, it is better to apply for an IPO through this process before 2 p.m., as it is considered for submission on the next day if you apply past 2 p.m.
How to Apply for an IPO through a Broker Online?
You can apply for an IPO very conveniently through a broker online. It is a hassle-free process that you can complete remotely from the comfort of your home. Check the steps below to apply for an IPO online through a broker.
Step 1: Log in to your online account through the broker platform.
Step 2: Navigate through the brokerage platform and select the IPO you wish to invest in.
Step 3: Select the number of lots you want and your bid price. You can have better chances of allotment if you select the upper limit (cap price) of the price band.
Step 4: Once your selection process is over it is time for payment. Select your convenient payment method; usually, you need to pay via UPI for an online IPO application.
Step 5: Confirm that the transaction was successful upon completion and watch for the notice of allocation.
What Are the Eligibility Criteria to Apply for an IPO?
You must be 18 years old to apply for an IPO in India. Although minors can also participate in an IPO, they will need a legal guardian to supervise the transaction through their trading account.
What Do You Need to Apply for an IPO?
IPO involves transactions between an investor and a corporation. Hence, there are specific requirements to be able to apply for an IPO. You need the following things to apply for an IPO:
An investor’s Demat account, which is tied to their specific PAN, acts as a depository for all their shares and securities in electronic format.
One needs to have a valid bank account to transfer or withdraw funds for purchasing or selling shares. The bank account is connected to your Demat account via a trading account. Demat account is debited or credit of shares according to the transactions made from your primary bank account.
You can also apply for the net banking feature which allows a seamless and fast mode of payment while purchasing stocks.
Investors must have a trading account registered to either of the depositories operated via a stock broker to apply for an IPO. A trading account is necessary to buy and sell orders and connect the Demat and bank account.
Unified Payments Interface (UPI) is a quick way to handle financial transactions digitally, and an alternative to payments through ASBA. It is not a primary requisite for investment, but it is one of the essential factors to have as an investor. Over time, the UPI mode of transaction can be made mandatory, as it promotes safe, paperless and more manageable mode of payment through payment apps like google pay, paytm, phone pay, etc.
You will need to confirm the blocked amount through your payment app easily on the go through your smartphone.
What Are the Benefits of Investing in an IPO?
As an investor, you can enjoy several benefits by investing in shares of an IPO. Check out these benefits below.
Lowest Share Prices
If a fundamentally strong company lists its equity in the stock market, there’s a high chance that its shares will perform well in the long term, on condition that the share values are accurately priced. Thus, when such a company announces its IPO, you can get its shares at the basic price, which may earn you high returns in future.
An IPO gives you a first scoop on a company’s public equity. Upon the IPO’s secondary market listing, its prices can become much higher than the issued price due to market demand. Therefore, by selling shares as soon as the company is listed on the stock exchange, you may profit during its listing.
Opportunity for Individual Retail Investors
An IPO allows investors to actively contribute funds in prospective companies, which allows you to be an early investor and earn lucrative profits out of its success. However, to increase your chances of profits, you must have an in-depth knowledge of the industry, the product offered and its market demand.
The most critical factor in applying for an IPO is to have the necessary accounts such as Demat account, trading account, etc. for your IPO transactions. Investing in an IPO is a systematic process, and you can apply it in various ways.
If you are not comfortable with online techniques, you can apply for an IPO offline via physical branches of banks and brokers. You can also invest in an IPO online via your broker or internet banking.
Frequently Asked Questions(FAQs)
How many types of IPO issues are there?
There are two types of IPO issues namely, fixed issue and Book building issue. A fixed issue, as the name suggests, assigns a fixed price for its share based on its outstanding debt and other liabilities. A book building process involves assigning a price band with floor and cap value, whereas the cut-off price is decided according to the bids submitted.
Is investing in an IPO more profitable than investing in the exchange market?
IPOs can be a perfect opportunity for investors to invest in potential companies, which may earn them very high returns. However, the IPO listed companies are new in the market, and one can not access historic data supporting their market value, thus carrying proportionate risk of losses. On the other hand, shares available in the exchange market are already established, and investors can properly analyse their market performance and invest accordingly.
Is UPI mandatory for IPO applications?
UPI is not mandatory to apply for an IPO, but it is very convenient. However, you can apply for an IPO through net banking as well.
Do you have higher chances of allotment if you apply for an IPO through ASBA?
No, you get no advantage in allotment if you apply through ASBA. ASBA makes the process of payment and allotment of an IPO safe and convenient. It avoids unnecessary holding of funds by a company.