Have you ever thought of applying for an IPO in the stock market? IPOs are the most famous type of investment. Unfortunately, almost every other good IPO gets oversubscribed and many people get no allotment.
So, why does this happen? When the maximum number of days for which an IPO bid should remain open is 7 (and the minimum is 3), why do companies go for three to four days of bidding? Well, here is the answer to all your questions.
There are three major reasons for a company to go for a shorter IPO. These are –
- Decrease IPO Expenses
A company has to hire a lead manager, syndicate manager, registrars, PR agencies, and various other parties to conduct the IPO. Lesser the number of days, the lesser the expenses. Along with that advertisement, campaign costs are also decreased if the process is cut down to three days.
- Reduce Oversubscription
Oversubscription is a major problem with IPOs. When the company receives more applications than the number of shares it wants to offer, it is termed an oversubscription.
- In case of a mild oversubscription, the company distributes one lot to each bidder and then distributes the rest lots proportionally.
- But in case of high oversubscription, only lucky draw winners are given the shares. After that, the bidders who do not get shares are refunded their ASBA money.
So, smaller companies keep their IPOs short to avoid this extra work.
- Early Listing
As soon as the company gets listed, it functions actively in the market. The company is also able to analyze its performance in the market through this. A company gets listed within a week of the finalization of the share allotment. So, if a company conducts an IPO within three days, it can allow the shares sooner. As a result, these shares would be transferred faster in the Demat account of the bidder; hence, the listing would also take place faster.
Thus, although keeping the issue open for seven days might be a luring thing for the company, it comes with its own disadvantages. As a result, companies often decide to keep this period short.
In the case of bigger companies, this time might increase to five days.
Under special circumstances, the company can apply to SEBI to increase the time period of the issue process, though it is a rare scene.
IPOs are often oversubscribed as they come with high profits. So, if you are interested in applying for an IPO, make sure you do it quickly without making any mistakes. But make sure you only invest your money in a company that has a good strategy, sound financials, good revenue potential, and managerial quality. You can save yourself a lot of time by downloading the Shoonya app. Shoonya is a multi-asset trading platform that gives you advanced comparability tools. Not only can you research a company but also compare it with others before investing. And guess what? You can do all that without paying any brokerage. So, download the Shoonya app and start your investment journey with zero brokerage today!