An Initial Public Offering (IPO) is a process used by a company to raise fresh money from the market. In return for money, the company turns public and provides its shareholding and the investors who buy shares are the shareholders of the company.
The funds raised by launching an IPO are utilized for various purposes, they can be used for expansion, for Research and Development purposes or the funds can be used to pay off higher-interest loans as well. IPO investments can be used to fund all these requirements.
To invest in an IPO, a Demat account is a must. An investor cannot invest in an IPO if he/she doesn’t have a Demat account. Demat acount meaning is an account that holds the securities just like a bank account holds the money. So, after the shares are allotted, they are stored in this account.
However, a trading account is not required to invest in an IPO. A trading account is used when you want to do share trading, so if you want to sell your IPO investment then a trading account is necessary.
All You Need To Know About IPO and How to Trade Online
Price
You have to understand the two processes with which IPO prices are fixed. The first one is Fixed Price IPOs, the IPO prices are fixed by the company in advance. The second one is Book Build Issue, in this, the company decides an indicative range of the prices, and the exact price is calculated via the book building method. Book Build Issue is the most chosen one by the companies.
Categories
IPO investment has three categories – Retail, High Net Worth (HNI), and Institutional Investors. Retail investors are those who invest up to Rs.2Lakh. Retail Investors are given more preference as SEBI ensures that more and more shares are allotted to the retail investors.
While for HNIs allotment is done proportionately and for Institutional Investors the allotment is discretionary.
Ways to Apply
There are two ways to bid for an IPO: Offline and Online. In the Offline method, you have to fill up the form and submit it to your broker or the company’s banker. While in the online method, you have to log into your brokers’ website and fill the form to apply. The probability of making an error in an online method is very less as most of the data is already stored on your brokers’ platform.
Number of Days
The whole process is usually completed within 10-12 days and then two more days are required to credit the demat account.
Use of ASBA
Applications Supported By Blocked Amounts (ASBA) have been facilitated by SEBI so that the investor does not pay any money till the time allotment is made. ASBA function allows the banks to hold the funds into the ASBA account and the funds are debited from the account only if the allotment is made. If the shares are not allotted then the amount is released from the hold.
For instance, if you have applied for shares worth Rs.2 Lakh and shares worth Rs.1 Lakh are only allotted to you, then Rs.1 Lakh is debited from the account and the hold is removed on the remaining Rs.1 Lakh.
To Sum Up
You cannot apply for an IPO without a Demat account because after the allotment you will require a Demat account to store the securities. The process of opening a Demat has also shifted online and it has become very easy to open a Demat account. The process of IPO investment has also become very simple over the years that brought in a lot of retail investors into this segment.