Today, the phrase, ‘A company went public,’ is commonly seen online or in a newspaper advertisement. What does this imply?
It means the private company is all set to issue shares and raise capital from the public. By law, a private company can have a limited number of stakeholders. But it can convert itself into a public limited company and raise capital by making people stakeholders.
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Simply put, companies launch an Initial Public Offering or IPO to announce their decision to ‘go public'.
You can buy an IPO both online and offline. To proceed with the offline method, you need to submit a form to your broker or IPO banker. On the other hand, the online method requires logging in to your banker or broker’s trading interface.
It can be more convenient to apply for an IPO online than offline. Most of the information for the online application is extracted automatically from your Demat account, thereby helping you save time and effort.
Investing in an IPO is different from investing in a stock. Here’s what you need to do:
Start by choosing the IPO you wish to buy. Read the company’s prospectus to gather the required information. It is available on the Securities and Exchange Board of India’s (SEBI) website. The document helps you understand the company’s business plan and objectives.
Organise your finances before investing. It is excellent if you have adequate savings in your account. If you don’t, you can contact banks and Non-Banking Finance Companies (NBFCs) willing to lend money at a specific interest rate. IPOs carry high risk, making it essential for you to be sure about the money you are setting aside.
You cannot apply for an IPO if you don’t have a Demat account. You can open a Demat account with any SEBI-authorised broker by submitting your Aadhaar Card, PAN Card, proof of identity and address.
After activating your trading-cum-Demat account, learn about the Application Supported by Blocked Amount (ASBA) facility. SEBI introduced this facility, and is compulsory for IPO applications.
ASBA permits banks to block money in your account for purchasing shares. It eliminates the need for demand drafts and cheques. Just mention your PAN, bank account number, Demat account number, and bidding details in the application.
The prospectus mentions a lot size for you to place bids. The lot size refers to the minimum quantity of shares you can bid for in your application. The company also pre-determines a price band. You can make bids within that price band only. Fortunately, you can change your bid anytime, but the money required for bidding is blocked.
Allotment of shares is based on its demand. If the demand exceeds the number of shares issued in the market, you might receive fewer shares than what you mentioned in your application. It is also possible that you don’t get any. Regardless of what happens, the bank will unlock your money after the IPO opens.
A Confirmatory Allotment Note (CAN) is assigned within six working days to those who get full allotment. The allotted shares will be credited to your Demat account.
An IPO is a lucrative investment opportunity for most investors. But before you start, remember to take the precautionary steps. Do your background research to understand the IPO’s potential. Analyse your financial position and risk tolerance. Open a Demat and trading account if you don’t already have one. Once you’re ready, apply for the IPO online or offline, depending on your preference. Check the lot size mentioned in the prospectus to make your bid. The shares will be credited to your Demat account after allotment.
Pick a SEBI-authorised broker, like Motilal Oswal to embark on your IPO journey. This can ensure that your application process is seamless and transparent.