A Guideline for Investing in IPOs for Beginners
If you are a first timer into IPOs, you need to understand 3 things. Which IPOs
to apply is a good place to evaluate and start off with. Secondly, you need to understand
the comparison of offline and online application for IPOs and make y our choice.
Lastly, you must also know how to bid for an IPO and at what price to bid for the
How IPOs can be a Starting Point for Equities
Before you get into the nuances of investing in secondary market equities, the IPOs
can be an interesting place for you to start off with. The reasons are not far to
seek. IPOs go through a rigorous vetting by the investment bankers and also go through
the SEBI approval process. Normally, companies and investment bankers will be keen
to leave money on the table for IPO investors and you can get the added benefit
of listing gains on an IPO.
5 Things you need to know as an IPO Investor
Read the prospectus
You can read up the complete prospectus which is downloadable from the website of
your broker and also from the website of SEBI. You can get a wealth of information
about the company including the promoter details, the financials of the company,
the basis for valuation, the legal cases and contingent liabilities etc.
Retail versus HNI quota
You need to decide which quota you need to apply under. If you are beginner in the
IPO market it is better to apply through the retail quota because the logic for
allotment in this quota is to ensure that maximum numbers of allotments are made
to the maximum number of individual investors. This improves your chances of allotment.
What price should you bid at for the IPO? Ideally, you can mention any price that
is within the price band for bidding. In case you are not sure of how the price
will be discovered, you can just mention Cut-Off as your application price. You
will be deemed to have applied at the discovered price when the allotments are made.
Online versus offline application
You have a choice of opting for the offline application facility or the online application
facility. You can choose according to your convenience. In case you already have
an online trading account mapped to a DP and to a bank online, you can invest in
an IPO online. It is not only simpler but also quicker and more cost effective.
Check subscription status
You can check the latest updated subscription status on the websites of NSE and
the BSE. This will give you the status of forms that are already uploaded into the
system and the final figure may be different. But this real time demand analysis
gives you an idea of whether the pricing of the IPO will be at the upper end or
lower of the price band.
Three Reasons to Opt for the ASBA Facility in an IPO
One of the benefits of an IPO application you need to be familiar is the Applications
Supported by Blocked Amounts (ASBA) facility. What exactly does it do?
ASBA only blocks amounts
The ASBA facility ensures that only the application amount is blocked in your bank
account and not debited to your bank account. Thus you will continue to earn interest
even on the blocked amount in your bank account. You only cannot issue cheques or
withdraw the cash against which there is an ASBA block.
Quicker churning of funds with ASBA
ASBA ensures quicker churning of funds for the investor. Unlike in the old system,
the investor does not have to wait for the allotment process to get completed and
the refund orders to be mailed to the investors. Instead, on the date of allotment
only the allotment amount is debited to your bank account, and the block is removed
on the balance.
Participate in more opportunities
This helps you to roll your funds more efficiently and invest in more issues as
the block will be valid for less than one week. ASBA reduces your opportunity cost