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Step by Step How to Open a Demat Account and Apply For an IPO

An Initial Public Offering or an IPO is offered when a company that is private provides shares to the public at large. Called an ‘Initial Public Offering’ because a private corporation offers shares to the public for the first time, investors get an opportunity to become shareholders in the said company. However, before a company can officially offer its shares publicly, the company in question has to fulfil particular conditions which have been set forth by SEBI or the Securities and Exchange Board of India.

The Investor’s Role and an IPO

Institutional and individual investors, who are of the belief that any company offering an IPO will grow, purchase shares of the company, in the hope of making good returns. The share volume that the company sells as well as the price these shares are sold determine the said company’s ‘new’ equity worth or value. When the company is a private company, shareholders are few, and these may include the founders of the company, and families of founders and some friends. It may also include individuals and entities that have invested in the company for it to start, like venture capitalists. Most companies wait it out till they are robust and steady before offering an IPO. When the company ‘goes public’, the shares that are owned by the initial investors are worth the same price at which they are publicly traded. Any upcoming IPO requires you to open a Demat account to trade in an IPO or invest in it.

The Need for a Demat Account

Where IPO investments are concerned, these are conducted through a special process known as ASBA or Applications Supported by Blocked Amounts. Here, the amount that you wish to invest in an IPO (depending on how many shares you wish to purchase) is blocked in your account in your bank, but it is not debited from the account till the said shares are allotted to you. In order to apply for an IPO, you should ideally open a Demat account first. A Demat account holds your shares in electronic form. You can open a Demat account at a brokerage or a bank, but you must link this to your bank account. Here are the steps to open a Demat account if you wish to invest in any upcoming IPO:

You must select a good brokerage to open a Demat account. This is called a DP or a depository participant that is an entity that has the right to open a Demat account on your behalf.
If the brokerage has an online platform, you may select an option that states ‘Open a Demat account’ or simply ‘Demat account’.
You will see a Demat account opening form which will be displayed. You must fill this in with your details.
Then submit this form.
Along with the Demat account opening form, you will have to also upload scanned KYC documents, and these include your identity proof, residence proof and age proof documentation.
After you have uploaded your scanned documents, a verification procedure will take place, so that your records may be checked by your DP. You may have to appear at your DP’s office in person for this with your original documents.
After your verification is done, you will have to sign an agreement with your DP (this is a contract). This explains all the rights and responsibilities of the DP and the investor.
After this, your application gets processed and you get an ID number which is your reference for all ongoing transactions with your Demat account.

Applying for an IPO

To apply for an IPO, you can do so through a brokerage, and you will have to fill out an IPO application form. You can do this online through your brokerage conveniently. The form will have to be filled out with details requested, along with your Demat account ID number. After you do this, you will have to wait for shares offered by the IPO to be allotted to you. These will automatically be credited to your Demat account if allotment takes place. You can easily open a Demat account for free at Motilal Oswal and get to learn about the latest talked-about upcoming IPO by LIC.