How to Invest in IPO in India: Basics, Process and More

Investing in an IPO (Initial Public Offering) can be a lucrative opportunity to participate in the growth of a new or emerging company. However, it’s essential to understand the process, risks, and steps involved in making an informed investment decision. In this comprehensive guide, we’ll walk you through the steps that you must follow to make sure you know the best IPO to invest in India.

Basics of IPO Investments

IPO, short for Initial Public Offering, marks the transition of a privately held company to a public one. It’s the first time a company’s shares become available for purchase by the general public. IPOs come in two main types: fixed-price offerings and book-built offerings.

1. Fixed Price Offering: In this type, the share price is predetermined by the company before the IPO. Investors pay the set price.
2. Book-Built Offering: The share price in a book-built offering varies based on investor bids. The final price is determined by the demand for the shares.

What is IPO Allotment

IPO allotment status refers to the allocation process of shares to investors who have applied for an initial public offering (IPO).

It occurs within a week after the IPO’s closure. To check your IPO allotment status, you can visit the registrar’s website or the stock exchange where the IPO is listed. Here’s a step-by-step guide:

• Choose the specific IPO from the recent or upcoming IPO list.
• Enter your application number or PAN number and click “submit” or “search.”
• You’ll receive your IPO allotment status, indicating whether you’ve been allotted shares, not allotted, or are still pending.
• If you receive an allotment, you’ll also see the number of shares allocated and the amount debited from your bank account.
• In case you’re not allotted or receive fewer shares than applied for, you’ll see the refunded amount in your bank account.
• If your status is pending, the allocation process is still ongoing, so you’ll need to wait.

Remember that you can also verify your IPO allotment status offline through your broker or the registrar. Once you know your status, you can make informed decisions about holding or selling your shares on the listing day, when they begin trading on the stock exchange. 

How to Apply for an IPO in India

Whether you’re an experienced investor or a novice, here’s how to apply for upcoming IPOs in India:

1. Choose the Right IPO

Selecting the right IPO is a critical first step. Your decision should be guided by personal and company-related factors.

Personal Factors

• Determine your investment criteria.
• Assess your risk appetite.
• Align your investment with long-term financial goals.

Company Factors

• Thoroughly review the company’s prospectus.
• Analyse the company’s past performance.
• Understand the company’s growth plans.

2. Arrange for Funds

Before you invest in an IPO, ensure your finances are in order. You can use your savings or borrowed capital, but it’s crucial to be cautious as IPOs come with higher risks.

3. Open a Demat and Trading Account

To trade and invest in IPOs, you need both a Demat and a trading account. A Demat account holds electronic records of your share purchases, while a trading account allows you to buy and sell shares. It’s advisable to open both simultaneously for a smoother investment experience.

4. Purchase IPO Shares – The Application Process

To purchase IPO shares, you can use your Demat or bank account. The Application Supported by Blocked Account (ASBA) system simplifies this process. ASBA allows banks to block the required funds in your account, ensuring the funds are available until share allotment. If you receive fewer shares than applied for, only the amount for the allotted shares is debited from your account.

How to Apply for IPO Through ASBA and UPI

There are different ways to make an IPO investment, and you can do it either through ASBA or even through UPI.

Apply for IPO through ASBA

ASBA (Application Supported by Blocked Amounts) is a popular method to apply for an IPO in India. Most banks provide an online ASBA facility. 

Here’s how to apply for an IPO through ASBA:

• Log in to your net banking account.
• Navigate to the IPO/Rights Issue section.
• Select the IPO you want to apply for.
• Provide details such as the number of shares, bid price, and date of birth.
• Check pre-filled information such as your name, PAN, bank account details, nationality, and residential status.
• Confirm the amount to be blocked and agree to the terms and conditions.
• Submit your IPO application.

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Apply for IPO through UPI

Investing in an IPO through the UPI (Unified Payments Interface) is another straightforward option:

• Log in to your trading account and select the desired IPO.
• Specify the price at which you want to apply for shares and the number of lots.
• Complete the application form and provide your UPI ID.
• Approve the funds’ block request on your UPI app.

Benefits of IPO

Investing in an Initial Public Offering (IPO) presents a host of advantages, making it an enticing option for investors. Here are some key benefits associated with participating in an IPO:

1. Potential for High Returns: IPOs often have the potential for significant capital appreciation shortly after their public debut. Early investors stand to profit as the company’s stock price rises.
2. Access to New Opportunities: IPOs provide a unique chance to invest in emerging and promising companies that are not yet available on the stock market. This is especially appealing for those seeking innovation and growth in their investments.
3. Liquidity: Once a company goes public, its shares become tradable in the secondary market, offering investors increased liquidity. Buying or selling shares becomes more accessible, depending on market conditions.
4. Diversification: Incorporating IPO investments into your portfolio can help diversify your holdings, reducing the risk associated with having all your investments in more mature or established companies.
5. Transparency: Companies going public are mandated to disclose their financials, operations, and future plans in their prospectus. This transparency empowers investors to make well-informed decisions.

It’s important to keep in mind that while IPOs offer numerous advantages, they also come with risks. The potential for high returns is balanced by the risk of price volatility and uncertainty associated with newly public companies.

IPO Investment in India: What to Keep in Mind

While investing in IPOs can be enticing, you should be aware of the risks and challenges:

• There’s no guarantee of allotment at your desired price.
• Shares may not list at a premium or appreciate as expected.
• Market volatility and speculation can be high on listing day and afterwards.
• Limited information and history might be available about the company.
• Regulatory or legal issues could affect the company or sector.

To navigate these challenges, conduct thorough research and consider consulting a financial advisor. Wise and cautious investments in IPOs can lead to substantial rewards.

Investing in IPOs can be a dynamic and rewarding endeavour, but it’s essential to approach it with careful consideration and informed decision-making. By following the steps outlined in this guide and being mindful of the associated risks, you can explore the world of IPO investments with confidence and prudence.

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.