When a retail or HNI investor applies for an IPO in India, it’s an exciting time. You’re investing in a company, and potentially, you could become a shareholder. However, the funds you allocate for the IPO aren’t immediately available for your use. They’re blocked or a lien is marked in your bank account until the IPO process concludes. This article unravels the process of IPO refunds in India, answering common questions and providing essential information for investors.
Understanding IPO Refunds in India
IPO Application: Funds Locked
When you apply for an IPO, the funds needed for the allotment of shares are blocked in your bank account. This ensures that you have the necessary funds to back your application.
IPO Fund Not Released: Allocation Status Matters
The release of funds depends on the allocation status. If you’re allotted shares, the required funds are withdrawn, and the balance is released. If not, the blocked amount is eventually unblocked and made available to you.
Regulatory Framework: Timelines for IPO Refunds
In India, regulatory authorities mandate the timeline for IPO refunds. Refunds must be initiated within 4 business days of the public offering’s closure. This ensures that investors have access to their funds in a reasonable timeframe.
Reasons for Returning IPO Funds
The issuing company is obligated to release blocked funds in various scenarios:
1. Non-Allotment: If you don’t receive any allotment or receive only a partial allotment, the registrar or the bank must unblock the blocked amount.
2. Non-Receipt of Minimum Subscription: If the issuer doesn’t receive the minimum subscription of 90% of the net offering, the money must be refunded or the subscription amount released.
3. Failure to Obtain Listing Approval: Sometimes, the issuer doesn’t obtain permission to trade on specific stock exchanges. In such cases, they must refund the IPO application money.
4. Failure to Allot to Minimum Number of Allottees: If the prospective allottees of the company are less than 1,000, the issuer must refund the IPO subscription money.
5. Failure to Allot 75% of Offer to QIBs: In QIB (Qualified Institutional Buyer) route issues, if the company fails to allot at least 75% of the offer to QIBs, the entire subscription money must be returned to investors.
IPO Amount Unblock Time
The table below outlines the timelines for IPO refunds:
- Non-Allotment: Within four days of the issue’s closure.
- Non-Receipt of Listing Permission: Within four days of receiving intimation of listing rejection.
- Non-Receipt of Minimum Subscription: Within four days of the issue’s closure.
- Minimum Number of Allottees Not Achieved: Within four days of the issue’s closure.
- Failure to Allot 75% of Offer to QIBs: Within four days of the issue’s closure.
The initiation of IPO refund varies for each IPO and is specified in the Red Herring Prospectus (RHP). You can also find these details on the Chittorgarh website.
Initiation of IPO Refund Process
The registrar of the IPO is responsible for initiating IPO refunds. They work in coordination with banks/self-certified syndicate banks (SCSB) to unblock accounts and process refunds. Here are the steps involved:
- The registrar, stock exchange, and lead manager finalise the allotment.
- Registrar notifies banks to withdraw or release the funds.
- SCSB lifts the lien on funds blocked for applications submitted through ASBA or UPI.
Modes of IPO Refund Initiation
Refunds are initiated in various ways based on the IPO application method and investor category. Here’s an overview:
- ASBA: Funds are unblocked for Retail Individual Investors (RII), Non-Institutional Investors (NII), and Qualified Institutional Buyers (QIB).
- UPI: Mandate revocation is done for Retail Individual Investors (RII).
- Electronic Mode: Refund orders are dispatched via NACH, NEFT, Direct Credit, or RTGS for Anchor Investors.
IPO Funds Not Unblocked? What to Do
If your funds aren’t unblocked as expected or if you haven’t received the credit within the specified period, follow these steps:
- Check with your bank to ensure they’ve received the refund/unblocking instruction.
- If there’s no issue with the bank, contact the Registrar. You can reach out online through email or visit the nearest branch.
- If resolution isn’t achieved, contact SEBI. You can file an IPO refund complaint on the SCORES website or send a physical application to SEBI. Additionally, SEBI offers a toll-free helpline desk for investors at 1800 266 7575 or 1800 22 7575 for guidance and status updates.
Interest on Delayed Refunds
In cases where the refund isn’t processed or amounts aren’t unblocked within the specified time limits, the issuer may pay interest at a rate of 15% per annum.
Key Dates: Funds Unblocked if IPO Not Allotted
Funds are typically unblocked after the allotment of shares. If your IPO application was not allotted any shares, the timing for unblocking your funds typically follows a specific schedule. Here’s an example for clarity:
- IPO Opening Date: This is when you can start submitting your IPO application.
- Close Date: The last day for submitting your IPO application.
- Cut-off Time for UPI Mandate Confirmation: Certain banks might unblock the funds only after the UPI mandate end date.
- Basis of Allotment: After the IPO closes, the basis of allotment is determined.
- Initiation of Refunds: If your IPO application wasn’t allotted any shares, the initiation of refunds to your bank account begins.
- Credit of Shares to Demat: If you were allotted shares in the IPO, they would be credited to your demat account.
- Listing Date: The IPO shares become officially listed and available for trading.
So, if you didn’t receive any allotment in the IPO, your funds should start getting unblocked after the initiation of refunds, or till the date of listing, depending on your bank’s policies.
This guide aims to simplify the complex process of IPO refunds in India, ensuring that investors have a clear understanding of the timelines, reasons for refund, and steps to follow if they encounter delays. By being informed and proactive, investors can navigate the IPO journey with confidence and clarity.
FAQs| IPO Refund
When applying for an IPO online, the application amount is blocked in your account and remains inaccessible until the IPO allotment is finalized, using the ASBA (Application Supported by Blocked Amount) facility.
You can withdraw your IPO application before the closing date of the IPO issue, either through your trading account online or by contacting your broker, which will release the blocked amount.
Money can be withdrawn from an IPO before the issue closes, with the closing date typically specified in the IPO prospectus. However, withdrawal is not possible after the issue closing.
If you receive an allotment of shares in the IPO, the blocked amount is debited, and shares are credited to your demat account on the listing day. If you don’t receive an allotment, any excess amount is refunded to your account.
According to SEBI regulations, IPO refunds must commence within 4 working days after the public offer closes. Failure to do so may result in penalties and interest payments by the issuer.
IPO payment is revoked when the issuer cancels the public offer for reasons like insufficient subscription, lack of listing approval, or failing to meet minimum allotment requirements. In such cases, the IPO application money is refunded to investors.
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.