What documents are required to bid for an IPO?
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You need to have a valid demat account, a registered bank account, a PAN card and address proof.
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The Indian market offers a wide range of opportunities for every individual to make a profit, and one such opportunity comes from IPOs. Initial public offering is the process through which a company issues its shares and securities to the public for the first time by listing its shares on the stock exchange.
The process of applying for an IPO is slightly different from regular shares and therefore, it is important for you first to understand the process of IPO bidding. In this article, we will walk through the details of IPO bidding, including the common mistakes that you must avoid.
Before we get into the details of the IPO bidding process you first need to understand the basics of IPO bidding.
Here is a list of boxes that you must check to start the IPO bidding process:
An initial public offering has gained wide popularity in the country because it offers investors an opportunity to enter a promising company in the initial years. Let’s take a look at some of the benefits of investing participating in IPOs:
One of the key rules of creating an impressive investment portfolio is to ensure diversification. Investing in an IPO provides an opportunity to diversify the portfolio by investing in different companies to smaller shares.
One of the biggest advantages of participating in an IPO is that once the company goes public you have the right to sell the shares in the market and on profit.
If you are a retail investor then participating in an IPO must be on your investment list. This is because SEBI mandates that in case of an oversubscription of IPOs, the company has to ensure at least one lot of shares to retail investors.
Here’s everything you need to know to participate in an online IPO bidding process:
To participate in an online IPO bidding process you need to have a Demat account. If you already don’t have a Demat account make sure to choose a reliable broking platform to open a Demat Account and trading account.
Before you participate in an online IPO bidding process make sure to keep documents like your PAN card, address proof, bank details, etc., handy to avoid any last-minute hassle.
The broking platform you choose will have a specific IPO page where you can select the IPO issue you want to apply for. Now once you have selected the IPO of your choice you have to make the bid between the two price ranges. Remember that you can make a maximum of three bids at once. Additionally, you also have to select the IPO lot for which you want to bid.
Once you have selected and made the bid you have to authorise the payment by filling out the ASBA form that authorises your bank to block the bid amount from your bank account.
Here’s how you can participate in an offline IPO bidding process:
You can visit the nearest branch of your bank or get in touch with a stockbroker or your relationship manager to get the IPO bidding form.
Once you have the form, make sure to fill it with due diligence. Know that the application form features details like the IPO you wish to apply for, the number of shares you wish to purchase, personal details, bank account details, etc. While filling out the IPO bidding application form, you also have to mention your 16-digit demat account number.
Remember that if you are participating in an offline IPO bidding process, you have to make the payment by attaching a cheque with the application form. Just like an online application, the amount mentioned in your cheque will be blocked from your bank account.
The ASBA or Application Supported by Blocked Amount Is an integral part of the IPO application process that was developed by the SEBI to streamline the process of IPO bidding. Remember that to apply for an IPO, SEBI has made it mandatory to fill out the ASBA form.
Here’s everything you need to know about the ASBA form:
To fill out the ASBA form you can either download it from the official website of the Bombay stock exchange or National Stock Exchange or get it by visiting the nearest branch of your bank account. You can also get the ASBA application while participating in an online IPO application process from your broking platform.
The ASBA streamlines the payment process for IPOs. Remember that till the time an amount is blocked from the bank account, you do not lose any interest on the blocked account. The money is debited only if the IPO is allotted in your name and in any other case the amount blocked is released by the bank.
Remember that IPO bidding is an important step in deciding whether or not the IPO will be allotted under your name and whether or not it will bring profits. Here’s a list of tips and strategies to help you in IPO bidding:
When a company decides to go public it is obvious that the company will make sure to create an illusion of profits. Therefore it is important for you to dig deep and research well about the company either by collecting information online, analysing the company‘s position with its competitors, reading press releases and researching about the industry’s health overall.
Remember that while applying for an IPO it is important that you trust a company that has strong underwriters. Although a strong underwriter doesn’t always guarantee profits, it is highly unlikely for a reputed underwriter to associate its name with a deteriorating company.
A prospectus is your insight into the company’s financial health, future business planning, the way the company is planning to use proceeds from the IPO subscriptions etc. Therefore you must carefully analyse the prospectors and see whether or not it aligns with your investment goals.
Participating in IPO bidding and getting a successful allotment can bring impressive profits to your investment portfolio. However, as a beginner, you must ensure to avoid common mistakes that can either lower your chances of getting the IPO allotment or get trapped into false market trends.
Take a look at these common mistakes that you must avoid during IPO bidding:
Remember that every investor in the market has a different investment goal and risk appetite therefore you must avoid the herd mentality. Instead of going blindly for companies that have created hype in the market you must carefully analyse the company’s financial position and consider applying for an IPO only when it aligns with your investment goals.
Another common mistake investors make is not doing adequate research. One of the most common mistakes investors make while applying for an IPO is getting trapped in false market alarms and trends.
When you fill out the application form for IPO bidding, you must cross-check all the details to avoid making mistakes that can dismiss your application.
Lastly, chasing brands and listing gains are other common mistakes that investors often make while applying for an IPO. A simple rule of investment is that not all large numbers come with promised returns and therefore the right way forward is adequate market research and investing only when you have a risk appetite.
Once you have placed an IPO bid, it is submitted to the concerned stock exchange. Remember that till the timeshares are allotted, the amount you have bid for the IPO is blocked from your account through an ASBA mechanism.
After all the bids for the concerned IPO are completed, the company runs the data and finalises the IPO price depending on the bids. If the bid you made is equal to or closer to the final IPO price, the shares are allotted under your name, and you will be able to see it in your demat account. When shares are allotted in your account the money blocked from your account will be debited.
In any case, when your IPO application is rejected, the blocked amount from your account will be automatically released.
The IPO bidding process is crucial for you to build an impressive investment portfolio so make sure to perform due diligence in the application process and apply only when you have conducted market research about the company.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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You need to have a valid demat account, a registered bank account, a PAN card and address proof.
Yes, you can modify or cancel your IPO bid after submission by logging into your broking platform and making the request. However, remember that once the shares have been allotted you cannot cancel or modify your bid.
The IPO allotment process is the distribution of shares to all the investors who have applied for it. Now, depending on the number of subscriptions the company either goes for a pro-rata system or a lottery.
The ASBA is a form that is filled by an applicant for an IPO. This form authorises the bank to block the amount from the applicant’s bank account till the time IPOs are allotted.
No, there aren’t any charges associated with applying for an IPO.
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