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Guideline for Investing in IPOs for Beginners

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 IPO.

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.

Bidding price
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 of funds.

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