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.
FD vs Mutual Fund - Know Difference between Fixed Deposit and Mutual Fund
How mutual funds are better than fixed deposits?Since fixed deposits are perceived to be relatively risk-free, most people opt for them when it comes to their choice for saving money. Thus, fixed deposits have been a perennial favourite with Indian investors for decades. Saving money in the bank in the form of fixed deposits is equivalent to security and safety. However, it is crucial to introspect whether fixed deposits should continue to be a wise savings choice for millions of Indians. For instance, while fixed deposits can appear to offer attractive returns, the tax payable, based on the current tax slabs, for an investor may be on the higher end if they are investing in numerous fixed deposits of higher amounts. Also, given the rising rate of inflation, investing only in fixed deposits could actually turn out to be disadvantageous or even a loss-making proposition. The best option here could be to consider mutual funds as an alternative or at least an add-on to fixed deposits. Here, we take a detailed look into FD vs mutual fund.In the debate between mutual fund vs fixed deposit, it is essential to note that currently, both mutual funds and fixed deposits are equally popular among investors. Both these investment avenues offer reasonable returns to investors over a period. However, they have their unique characteristics. The difference between fixed deposit and mutual fund lies in understanding how mutual funds can be better than fixed deposits. To know which is better FD or mutual fund, you may want to analyse both these investment options and weigh their pros and cons. Only then can you take an informed decision. What are fixed deposits?Fixed deposits are conventional financial instruments provided by banks and non-banking financial companies (NBFCs) to their customers. These fixed deposits, typically, offer a higher rate of interest than a regular savings account. In other words, when you deposit a pre-specified amount for a pre-specified tenure, you get a fixed rate of interest at the end of the tenure. However, if the amount in the deposit is withdrawn prematurely, the bank could levy a penalty and you may lose out on the interest your investments were to fetch. Under the ambit of fixed deposits, banks also offer recurring deposits and flexible fixed deposits, which may overcome some of the above-mentioned flaws but simultaneously reduce your returns.Understanding mutual funds as an alternative to fixed depositsDebt mutual funds are a type of mutual funds that offer a wide range of possibilities depending on your risk taking ability and multiple other factors. In actuality, debt mutual funds are almost similar to bank deposits, serving the same function and rivalling each another. However, the main areas of difference lie in taxation, liquidity, returns and safety. Mutual funds top the advantage in terms of tax-adjusted returns, rate of interest and liquidity, while fixed deposits may be considered safer by the larger populace.Although bank deposits are regarded as the safest avenue to saving money in India, there has been historical precedence of local banks and cooperative banks defaulting on their customers' money. Hence, it may not be entirely true that fixed deposits are the safest savings instruments today. Fixed deposits that are locked in for a lengthy tenure could also face the risk of losing value in a scenario where interest rates are likely to rise. Although the risk can be in terms of opportunity cost, investors may not actually lose value when the deposit matures.On the other hand, the yields from debt mutual funds are market-linked, thus the returns sometimes may not be as high as promised. Having said that, the mutual fund industry is stringently regulated and monitored by the Securities And Exchange Board Of India (SEBI). SEBI authorities have drawn tightly regulated guidelines that control the risk profile of investments, the risk individual funds are likely to face, valuation of investments, and how rigorously the maturity profile shapes the fund's clear goals. The measures laid down by SEBI have been highly efficient in curtailing risk and ensuring safety.Why consider mutual funds over fixed deposits?Coming closest to traditional fixed deposits, in terms of safety, debt mutual funds can be ideal. The primary objective of debt mutual funds is to provide its investors with steady income throughout the investment tenure. Hence, choosing a tenure in line with that of a debt mutual fund can be useful in getting desired returns. Every fund house offers detailed information regarding various debt funds and their time horizon. This information can be crucial in helping you understand how the fund is performing with regards to interest rates. This can also help you understand market fluctuation and steer you to make informed choices while helping you take advantage of the right fund.The most crucial difference between mutual funds vs fixed deposits India comes down to taxation. The returns received from fixed deposits are under the purview of interest income and are typically added to one's overall revenue. If you belong in the top tax bracket (30%), the taxed could eat a substantial portion of the returns. Besides, fixed deposits can also be a candidate for tax deducted at source (TDS) if the interest exceeds a certain amount. On the other hand, tax rates are constant for debt funds, if held for 36 months or less. However, TDS is not generally deducted. If debt mutual funds are held for more than 36 months, the yields are classified as long-term capital gains. These gains are taxed at 20% with indexation.With regards to liquidity, you could receive the proceeds from an open-ended debt fund within a period of 2 to 3 working days. Fixed deposits, on the other hand, could also be availed within a couple of days’ notice, but can attract penalties if the funds are withdrawn before its maturity.Conclusion At the end of the day, debt mutual funds can be a superior savings option over bank deposits with its capacity to offer better tax-adjusted returns, as can be seen in the market. At the same, since there is an element of credit risk and higher interest rate in mutual funds, you can be compensated with higher returns by investing in mutual funds over fixed deposits. But knowing the risks involved and choosing the right mutual fund can help you get the best yields from your savings. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Mutual Funds KYC - Know about How to do KYC for Mutual Funds
How to do KYC for Mutual Funds Recent media accounts reported that mutual fund industry now has over Rs. 23 trillion in Assets Under Management (AUM) in February 2019 alone. This could be considered to be a sign that an increasing number of people are taking financial planning earnestly and are setting distinct financial goals for their future.With regards to secure investment schemes that provide above-average yields, mutual funds beat most other options to stand out as the emerging winner. Given the effortlessness through which one can invest in mutual funds, an upbeat market and a wide variety of mutual fund types make it an attractive investment proposition for new and seasoned investors alike. If you are looking to invest in mutual funds, first and foremost, it is essential to know that you can only invest in mutual funds if you are KYC compliant.Understanding KYC for mutual fundsKnow Your Customer, also known as KYC, enables financial institutions to validate your identity. As a first-time investor, you must undergo the KYC process before transacting in a mutual fund. Because it is a mandatory customer identification process, it is critical to submit your identity details to a mutual fund house, a stock broker like IndiaNivesh or any other financial institutions. This is because, according to the Prevention Of Money Laundering Act, 2002, AMCs must abide by the rules and guidelines established by the Act to implement a Customer Identification Proof. Furthermore, there are specific requirements prescribed by SEBI concerning KYC norms of financial institutions and intermediaries to know their customers. KYC for mutual fund requirements are typically in the form of verifying the customer's identity and address, financial standing, occupation and vital demographic data. These rules and regulations are continually updated by SEBI periodically.Valid from January 1, 2012, every investor regardless of the investment amount in mutual funds must comply with KYC to carry out any transaction. Since money laundering is a major issue worldwide, mandating KYC formalities is regarded as an efficient way of preventing illegal activity. The chief objective of the KYC process is to ensure that a real person or individuals are making investments rather than fictitious names. Every mutual fund investor must adhere to the KYC procedure via a KYC Registration Agency (KRA). This information held by the agency is stored in a single repository for all fund houses and intermediaries to access. Examples of these agencies include NSE, CAMS and KDMS.Documents required for KYCTo initiate your KYC process, you must submit the following documents along with the KYC application form and passport size photograph. Documents include:• Identity proof such as driving license, passport copy, voter ID, Aadhar card, bank photo passbook, or PAN card• Address proof such as recent landline or mobile phone, passport copy, electricity bill copy, voter ID, driving license or Aadhar cardTypes of KYC proceduresTypically, you can complete the mutual fund kyc form either through the off-line or online method. CDSL Ventures Ltd has been nominated and authorised by the mutual fund industry to conduct the Know Your Customer procedure.Off-line method• Visit the CDSL Ventures website and download the KYC application form• Fill in the details• Submit the signed application form through the specified mutual fund authorities or intermediaries• Provide identity proof and address proof and the passport size photograph to go along with KYC form• The duly filled form can be physically submitted at any of the following places. These include the Asset Management Company (AMC) through which you are making the investment or the Registered Transfer Agent (RTA) such as CAMS.Online Method• Create an individual account on the official website of the KRA. Fill in your credentials to initiate the online kyc for mutual fund• Key in your registered mobile number and enter your Aadhar card number• Verify the details through the OTP sent on your registered mobile number• Upload a self-attested copy of your e-Adhaar• Accept the consent declaration terms for the eKYCAadhar based KYC through biometricsYou can also opt for Aadhar based KYC if you have the Aadhar card. Request the fund house or agency to send their representative or an official to visit you personally and collect the details from you in person. You can submit a copy of your Aadhar card to the representative, and they will enter your biometric information on the scanner and link it to the Aadhar data repository. As your fingerprints get matched to the database, your credentials stored with the Aadhar database will reveal that your KYC has been validated. This process can ensure that you can go ahead with your mutual fund investment.KYC for non-individualsHowever, if the investor is not an individual, the KYC process must be completed in a different manner. For instance, here are some cases on how to complete the KYC based on the following:• Joint applicants. All or both applicants in a joint applicant setting must complete the KYC individually.• Power of attorney. The power of attorney holder and investor must complete the KYC process individually.• NRIs/PIOs. All NRIs and PIOs must complete the KYC formalities individually.• Minors. If a mutual fund investment is being made on behalf of a minor, the parent or legal guardian who wishes to operate the account on behalf of the minor must complete the KYC procedure. When the underage individual attains adulthood, he or she must complete the KYC formalities at the time.It is important to note that if any KYC documents are found incorrect, insufficient or not in order, the investor's compliance status can get cancelled. Under such a situation, the investor is informed of the status by the relevant authority.To know your mutual fund kyc status and the progress of your KYC process, you can check on the following websites. Here, it is important to note that you can visit any of the below sites depending on where you have given the KYC application form:• CDSL Ventures Ltd. CVL - https://www.cvlkra.com/ • NSE (DotEx International) - https://www.nsekra.com/ • NSDL Database Management Ltd (NDML) - https://kra.ndml.in/ • CAMS - https://camskra.com/Home.aspx • Karvy - https://www.karvykra.com/To know more about your mf kyc status, you can visit any of the above sites and enter your PAN number.Conclusion On completing the KYC procedure successfully, you will be able to purchase mutual fund units from your respective AMC or RTA. You can freely invest in a wide variety of mutual funds of your choice and any amount, after completing your KYC formalities. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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