Now that you know what an IPO is, we’ll tell you how to apply for one.
As an investor, if you wish to participate in an IPO, then you need to have a demat account. You can open a 3-in-1 (bank account, demat account, and trading account) with a stock-broker. Through the broker’s website or App, you can log in to your trading account and apply for an on-going IPO. You can apply through the ASBA (Application Supported by Blocked Amount) procedure in which the application money is blocked in your bank account. If you get the allotment of shares, the blocked amount will be debited from your bank account. If you don’t get the allotment, the blocked money will be released.
When a company comes out with an IPO, it announces the following:
Objects of the issue: This is the primary purpose of why the company is coming out with an IPO.
IPO opening date and closing date: These are the dates during which you can submit your IPO bid application. The bidding can be done during the 3 working days when the IPO is open.
IPO price band and number of shares on offer: The price band is the range in which each share of the company will be offered to the applicants. If the company gets a good response and the number of shares applied for far exceeds the number of shares on offer, then the company may finalise the issue price at the higher end of the price band. The company also announces the total number of shares on offer. The company also mentions the break-up of the percentage of shares reserved for different categories of investors like Qualified Institutional Bidders (QIBs), Non-Institutional Investors (NIIs), Retail Individual Investors (RII), employees, etc.
Minimum shares: This is the minimum number of shares that can be applied for. You can apply for one lot (minimum shares) and in multiples of more than one lot.
After the IPO closing date, over the next few days, the shares are allotted. If the issue is undersubscribed, then all applicants will get allotment as per their bid. If the number of bids for shares exceeds the number of shares on offer, then in the retail segment, the lottery system is used to select the bidders. The selected bidders will get a maximum of 1 lot of shares per PAN. When there is oversubscription, in the HNI segment, the ratio of bidding is used and some allotment is certain.
The shares are then credited to the demat accounts of selected bidders. In case of other bidders, they are sent an intimation that no shares have been allotted to them and their blocked money will be released. The company then announces the date on which the shares will be listed on the stock exchange and the share trading will start.
Next up, we’ll tell you the points to remember while applying for an IPO. Stay tuned!