An initial public offer (IPO) is one of the ways to invest in stocks. The lure of an IPO is the assumption that listing on stock exchanges will unlock value and IPO investors will gain manifold in a small time. Retail investors find IPO investing simpler, as they don’t have to deal with complications of secondary market price changes at least while buying. Here is what you need to know about buying shares via an IPO.
Go through details
Read up on the company issuing the shares. For an IPO, the issuing company will publish a prospectus with complete details about the business, the industry it operates in, company financials and pricing of the issue. Be sure to get your hands on this document. It is available online on exchange websites (BSE Ltd and the National Stock Exchange, or NSE), or on various broking websites like www.simplehai.axisdirect.in
IPO application is made through the ASBA (applications supported by blocked amount) format where the amount needed for the IPO is blocked in your bank account but not debited. You also need to have a demat account with the Central Depository Services (India) Ltd (CDSL) or the National Securities Depository Ltd (NSDL), which can be opened either directly or through a participant like a broker or a bank.
How to Invest
You can either invest online or through a physical application form. You can get a physical form from your broker, distributor or from a bank branch. You need to fill in the details for this form, including your personal details, IPO price range and amount and your bank and demat account details. If you have taken the form from a broker, mostly the broker code will be stamped and the form then needs to be submitted with that same broker. Banks accept forms from different codes, but you must have a valid account with the bank you are submitting the form in. Online applications can be made through broking, distributor or bank websites.
If your personal details are uploaded, you only have to fill in the price range and the total amount and click on apply. Make sure your personal details and the demat account number are updated and correct.
Wait for allotment. It takes about 10 days from the IPO closing date for the issue to list. Two to three days before listing, you are likely to have the allotted shares in your demat account. If the IPO is oversubscribed, you will not get the quantity you applied for; allotment is done proportionate to the oversubscription in the IPO. Once the shares are in your demat account and the IPO is listed, you can buy and sell as desired.