An IPO or Initial Public Offering is a process that companies use to raise capital from the general public. In this, the company offers its shares in exchange for the funds invested by the public. These shares can be subsequently traded in the market.
In short, it is a way through which a privately held company can get itself listed on the exchange and reach out to the public for its capital requirement by sale of its shares.
Points to note when applying for an IPO
• When one makes an application to buy an IPO, it is merely an invitation. It should not be confused with an offer. Only when the IPO issuing company offers the shares in exchange for money, does it amount to an offer.
• Types of IPO
There are two kinds of Initial Public Offerings – Fixed Price and Book Built. In the case of a Fixed Price IPO, the issuing company determines the IPO price (sum of the par value and premium amount) in advance. Interested investors can buy the IPO only at the pre-determined price. In the case of a Book Built IPO, the issuer only announces an indicative range. The IPO's final price is decided through the process of book building. Generally, most of the IPOs these days are conducted through the Book Building issue process.
• Classes of IPOs
IPOs typically are categorized into three classes – Retail, High Network Individuals (HNIs) and Institutional. Investments till the value of Rs. 2 Lakhs are classified as retail.
Who is eligible to buy an IPO?
Any adult (someone who is at least 18 years of age) who is considered competent to enter a legal contract is qualified to buy during the IPO. The concerned person should have the following documents and accounts:
• Valid PAN Card issued by the IT Department
• Active Demat account (In case of an IPO, it is not necessary to have a trading account. A Demat account can suffice for this purpose. However, if the investor wants to sell the stock upon listing, then a trading account is required)
Modes of investing in IPO
Earlier when one wanted to invest in an IPO, he or she would need to reach out to a broker. The broker would provide a physical copy of the application form. The investor would need to fill it and submit the same along with the cheque for payment. The application money would get deducted from the investor’s account and balance (if any) post allocation would be refunded back. It was observed that this process was time-consuming and cumbersome. Hence, a need was felt to move to a more efficient model for investing in an IPO.
ASBA – Applications supported by Blocked Amount
ASBA was designed as the answer to the issues faced during offline IPO applications. It is a process conceptualized and created by SEBI to streamline the online IPO process. With the help of ASBA, one can buy an IPO online without releasing the funds until the time the shares are allocated to them.
This application provides an authorization to block the application money in the bank account, for subscribing to an issue. If an investor uses the ASBA feature, the application money is debited from the bank account only if the application is successfully selected for allotment. During the interim period (i.e. till the time the shares are allotted) one can earn interest on the blocked amount. This benefit is applicable if the money is held in an interest-bearing account.
Considering the reach and ease of this application, Securities and Exchange Board of India (SEBI) made it compulsory for all IPO investors (for a public issue) to go through ASBA. This change has been in effect since Jan 2016.
Some key advantages of ASBA are:
• Investors do not need to pay the IPO application money through a cheque or other such facility
• It eradicates the long-drawn process of refund of the money (the difference between application amount and actual allotment) by the IPO issuer.
• It enables the investors to give authorization for the transfer of application money in the IPO application form itself. This ensures that the investors do not suffer from interest loss in the interim period.
• Simpler application form
• The IPO investor needs to deal only with a known intermediary such as their bank.
Who can apply through ASBA
Individual investors who meet the following criteria can buy IPO (book building route) through ASBA:
• He or she falls under the category of Resident Retail investor (is applying for securities whose value does not exceed Rs. One Lakh)
• The bidding is being done at the cut-off value with a single option regarding the number of securities being bid for.
• The funds being blocked for buying the IPO are held in an account with a Self-Certified Syndicate Bank (SCSB)
• Has decided not to revise the bid value
• The bidding is not being done through any reserved category
How to buy an IPO Online through the ASBA feature?
The process to buy IPO online is extremely simple and hassle-free. One needs to follow the below-mentioned steps:
• Log onto the online banking portal or net-banking account
• Go to the section dealing with investments. There will be an option for buying an IPO or e-IPO. Click on that.
• Fill in the required details such as depository information, bank account number, etc. and complete the process of verification.
• Once the required information has been entered, the investor is led to a screen usually titled as “Invest in IPO” or something on the same lines.
• Select the desired IPO. In a book building IPO, one needs to mention the bid price in addition to the number of shares
• Read properly the “Terms and Conditions” of the IPO and accept the same for the next steps
• If everything is in order, then confirm the bid by clicking on “Apply Now”
Note: The list of the ASBA certified banks or partners is available on the website of NSE or BSE.
With these technological advancements, it has become very easy to invest in an IPO. To make the process even better, one can reach out to financial experts such as IndiaNivesh. IndiaNivesh offers a wide range of financial services related to broking and distribution, institutional equities, strategic investments, corporate advisory as well as wealth management. Their research team studies the markets continuously and also lists out the top-performing IPOs for the benefit of the investors. All details are available at https://www.indianivesh.in/ipo-listing-details
So next time you see an interesting IPO coming up, you can buy the IPO online from the comfort of your home. In case IPOs are something that you would like to consider in the future, then we suggest you save or bookmark our tips on how to purchase IPO online. It will save you time in the future. And we all know that time is money!
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.