New Initial Public Offerings (IPOs) often create a lot of buzz among investors. IPOs are a great method for companies to grow and expand their operations. When the company launching its IPO in share market has a good track record and many takers, it can be difficult for interested investors to get a piece of the pie. If the investor does not have a Demat account, it can become even more challenging to invest in a promising IPO.
Demat accounts are necessary for all investors hoping to invest in or trade shares. These accounts, opened with a depository participant, store all your share certificates in the electronic or dematerialised format. This not only makes it easy to buy and sell shares and other securities, but is now mandatory for all stock market investors.
Can I buy IPO without Demat account? The answer is, yes. Although you should ideally have your Demat and trading accounts in place, it is not impossible to apply for IPO without these accounts. The method of investing in an IPO without a Demat account is rather ingenious. Here's how it's done—
1. Get in touch with a broker to open a Demat account.
2. Submit the required documents such as PAN details, photographs, proof of address, and opening fee.
3. Receive a DP ID from your broker immediately.
4. Apply for the IPO using this ID, but skip the 'beneficiary account number' section on the application.
5. Once you apply, the amount of money for the number of shares for which you have applied will be blocked through the Application Supported by Blocked Amount (ASBA) process in your account. ASBA has been made mandatory for all IPO applications by SEBI. Through this, the amount required for application is blocked till shares are allotted.
6. The omission of the beneficiary account number will be communicated to you by the registrar at the time of allotment. However, by this time, you will have received your real beneficiary account number.
7. You can correspond with the registrar to rectify the omission after which the shares will be credited to your account.
Alternatively, you can also “rent” a Demat account from investors who do not plan to apply for the IPO in question. You can later have these shares transferred to your newly created Demat account.
Although investors can apply for IPO without a Demat account, they need a Demat account and trading account to place trades. Therefore, the method detailed above is not sustainable. Ideally, for IPO investment, one should be prepared with a Demat account and trading account before buying any shares, if they wish to make the most out of trading in the stock market.
There are other issues with this method of IPO investment. Sometimes, if an investor enters an incorrect beneficiary account number, the allotment of shares can be delayed. This is unfavourable for an investor looking to make gains on the first day of the IPO.
While a Demat account allows you to hold all your securities in the electronic format, a trading account facilitates the sale and purchase of these shares and securities. Brokers often allot these accounts bundled together. Some DPs even offer 3-in-1 accounts that offer Demat, trading and banking facilities. To start buying and selling shares or for IPO investment, open your Demat and trading account today.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account | What's the big deal about IPOs | 5 Tips for Investing In IPOs