IPO stands for Initial Public Offering. It is the process of selling shares of a private company to the public for the first time. The company can raise capital from the investors by issuing an IPO. The process of IPO is regulated by SEBI – the Securities and Exchange Board of India. To buy shares of any company in an IPO, you have to bid for these shares. If your bid is accepted, you are allotted shares.
What are the benefits of investing in an IPO?
1.You can get shares at a lower price than the market price after listing.
2.You can get a chance to invest in a growing company and earn profits in the future.
3.You can diversify your portfolio with different sectors and industries.
Is there any risks of investing in an IPO?
1.You may not get the desired number of shares or any shares at all due to oversubscription or under-subscription.
2.You may not be able to sell your shares easily after listing due to low liquidity or volatility.
3.You may lose money if the share price falls below the issue price after listing.
There are two types of IPO – fixed price and book building. In fixed price, the company sets a fixed price for the shares and the investors have to pay the full amount while applying. In book building, the company offers a price range for the shares and the investors have to bid within that range. The final price is decided after the bidding process is over.
Some points to keep in mind before buying IPO:
- Do your research and analysis before applying for an IPO. Read the prospectus, financial statements, business model, growth prospects, and risk factors of the company.
- Apply for IPOs that have good fundamentals, strong management, and positive market sentiment.
- Apply for IPOs through ASBA (Application Supported by Blocked Amount) mode. This will ensure that your money is blocked only till allotment and you will earn interest on it.
- Apply for IPOs in the retail category if you are eligible. The retail category has a reserved quota of 35% of the total issue size and has a higher chance of allotment.
- Apply for IPOs at the cut-off price if you are not sure about the exact price. The cut-off price is the highest price in the book building range and will ensure that you don’t miss out on allotment due to underbidding.
What is Allotment in IPO listings
An allotment is the number of shares that you are allocated by the company or the underwriters, based on your application and the demand for the IPO. Getting an allotment is not guaranteed, as there may be more applicants than shares available. However, there are some tips that can increase your chances of getting an allotment in IPO listings.
- Apply in the retail category. Most IPOs reserve a certain percentage of shares for retail investors, who are individuals applying for less than Rs 2 lakh worth of shares. The retail category usually has less competition and higher chances of allotment than other categories, such as qualified institutional buyers (QIBs) or non-institutional investors (NIIs).
- Apply for the cut-off price. The cut-off price is the highest price at which the shares are allotted in the IPO. It is determined after the bidding process is over, based on the demand and supply of the shares. If you apply for the cut-off price, you will be eligible for allotment at any price below or equal to the cut-off price. This way, you will not miss out on the allotment if the IPO is oversubscribed and the final price is higher than your bid price.
- Apply through multiple demat accounts. You can apply for an IPO using multiple demat accounts, as long as they are in different names and PAN numbers. This will increase your chances of getting an allotment, as each demat account is considered as a separate application. However, you should not apply for more than one application per demat account, as this will be considered as multiple bidding and may lead to rejection of your application.
- Avoid last-minute applications. You should try to apply for an IPO as early as possible, preferably on the first day of the bidding period. This will ensure that your application is processed and submitted before the deadline. If you apply at the last minute, you may face technical glitches, server issues, or delays in payment confirmation, which may result in your application being rejected or not considered for allotment.
- Check the subscription status and basis of allotment. After the bidding period is over, you should check the subscription status of the IPO, which shows how many times the IPO was oversubscribed in each category. This will give you an idea of how likely you are to get an allotment and how many shares you can expect. You should also check the basis of allotment, which is the formula used by the company or the underwriters to allocate shares to the applicants. The basis of allotment is usually published on the websites of the stock exchanges and news, the registrar of the IPO, or the company itself.