An Initial Public Offering is a process that allows companies to raise capital from the market for business expansion, debt repayment, or providing an exit opportunity for early investors.
Once any company undergoes an IPO, it becomes eligible to be listed on the stock exchange.
Now you can easily buy and sell the company's shares on the secondary market. The Securities and Exchange Board of India is the regulatory body that oversees the stock market and its related activities. Before approving an IPO, SEBI thoroughly reviews the company to ensure it meets certain criteria.
Now let's understand how you can apply for an IPO. Most companies prefer offering online IPO applications for ease, but some still allow offline applications.
For the online method, you can apply through your broker's website or mobile app. The benefit of using the online approach is that most of your information is automatically pulled from your trading or demat account. This reduces the manual touchpoints and further brings down the scope for errors.
Here’s a step-by-step guide on how to proceed with buying an IPO offline:
To invest in an IPO offline, you’ll need a separate Demat account if you plan to sell the shares for a profit later on. Once you have that, follow these steps:
1. Obtain an IPO application form from your broker.
2. Complete the form and submit the filled form to your broker, along with a cheque.
3. Upon submission, you’ll receive an acknowledgment receipt.
4. If you're applying for an IPO amounting to over ₹50,000, make sure to attach a copy of your PAN card with the application form.
This is one way to apply for an IPO offline. You can also submit the IPO application form directly to a bank. Make sure your bank is associated with ASBA. Here’s how you can apply:
1. Visit the BSE/NSE website and download the IPO application form.
2. Fill in all the necessary details, such as your name, PAN number, and bid price.
3. Take the completed form to the nearest ASBA (Application Supported by Blocked Amount) participating bank branch and submit it.
Who Can Invest in an IPO?
In general, any adult who possesses a PAN card and has a valid demat account is eligible to invest in a company’s IPO. It’s important to note that for IPO investments, a trading account isn’t required—only a Demat account is necessary.
However, if you plan to sell the shares once they are listed on the stock exchange, you will need a trading account. This is why brokers often recommend opening both a trading and a Demat account when you apply for your first IPO.
Once you submit your IPO bid, the company and its underwriters review all the bids received. The next step is the share allocation process, where the number of shares each investor receives is determined based on factors like demand, subscription levels, and allocation guidelines.
After the shares are allotted, the corresponding amount is debited from the investor’s bank account, and the shares are credited to their Demat account. At this point, the investor becomes a shareholder in the company and is entitled to participate in its future growth and receive dividends.
Applying for an IPO through ASBA
One important thing to keep in mind when applying for an IPO is the facility called ASBA (Applications Supported by Blocked Amount), which has been introduced by SEBI.
The benefit of using ASBA is that you don’t need to make any upfront payment or issue a cheque for the IPO application. Instead, the application amount is simply blocked in your bank account until the allotment is made.
On the allotment date, only the amount corresponding to the number of shares you are allocated will be debited from your account. For example, if you applied for shares worth Rs 2 lakh but only received an allotment worth Rs 60000, then only Rs 60,000 will be deducted, and the remaining amount will be unblocked.
Conclusion
Before applying for an IPO, it's essential to thoroughly evaluate the companies, considering both the potential benefits and risks. You can apply for an IPO online as well as offline. Choose the process that suits you best and make sure to apply well within time in order to receive an allotment.
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