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How to Invest in IPOs?

By News Canvass | Jan 15, 2022

How to Invest in IPOs?

 i] Decision

 The first step for an investor is to choose which IPO he wants to participate in. Though existing investors may have the necessary experience, new investors may find it intimidating. Investors can make a decision based on the prospectus of the companies that are launching an IPO.

The prospectus aids investors in forming an informed opinion about the company’s business plan and the reason for obtaining capital in the market. After making a decision, the investor must look ahead to the following step.

 ii] Funding

 When an investor has decided on which IPO to invest in, the subsequent step is to secure the necessary capital. An investor can buy a company’s stock with his funds.

If the investor does not have sufficient funds, he might take out a loan from a bank or a Non-Banking Financial Organization (NBFO) at a fixed interest rate.

 iii] Setting up a Demat and trading account

An IPO cannot be applied for by anyone who does not have a Demat account. A Demat account’s purpose is to offer investors the ability to electronically store shares and other financial securities. Aadhaar card, PAN card, address, and identity proofs are required to open a Demat account.

iv] The application process

An IPO can be applied for using a bank account or a trading account. You may be able to bundle your Demat, trading, and bank accounts with some financial institutions.

After opening a demat-cum-trading account, an investor should get familiar with the Application Supported by Blocked Account (ASBA) facility. It is a requirement for all IPO applicants. The ASBA is a tool that allows banks to seize funds from an applicant’s bank account.The ASBA application forms are available in both demat and physical form to IPO candidates. Cheques and demand draughts, on the other hand, cannot be used to access the service. In the application, an investor must provide his or her demat account number, PAN, bidding data, and bank account number.

v] Bidding

An investor needs to bid while applying for the shares in an IPO. It is carried out in accordance with the lot size specified in the prospectus of the company. The minimum number of shares that an investor must apply for in an IPO is referred to as the lot size.

A price range is established, and investors must bid within that range. Although an investor can change his bids during an IPO, it is important to remember that he must block the necessary cash while bidding. In the interim, the money held in the banks pays interest until the allotment procedure begins.

vi] Allotment

The demand for shares can often outnumber the amount of stocks available on the secondary market. One may also find themselves in a scenario where they receive fewer shares than they had requested. In these circumstances, the banks either fully or partially release the frozen funds.

However, if an investor is fortunate enough to acquire a full allotment, he will receive a CAN (Confirmatory Allotment Note) within six working days of the IPO’s completion. The shares are credited to the investor’s demat account when they have been allotted.Once the aforementioned stages have been completed successfully, the investor must wait for the equities to be listed on the stock exchange. It is usually completed within seven days of the shares being finalised.

Initial Public Offerings are generally regarded as advantageous since they allow the issuer company to expand its ownership base while also increasing its exposure and prominence. At the same time, it offers investors the chance to make substantial profits. However, in order to spot chances, one must keep an eye on the most recent IPOs and have a firm grasp on financial metrics analysis.

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