Buying an IPO
If you wish to witness quick financial progress, buying IPO stock may be a smart move. But before you start, it’s important to know how the process works. In this article, we’ll walk you through the steps to make sure you’re prepared to invest in an IPO and have all the information you need to make an informed decision.
About IPO
A company’s decision to sell its shares to the public for the first time is known as an initial public offering, or IPO. This implies that the business, which was previously private, goes public. Fixed price offerings and book-built offerings are the two primary categories of initial public offerings.
The business sets a predetermined price for its shares in advance of a fixed price offering. In contrast, in a book-built offering, the share price can change based on the bids placed by investors. So, it is kind of like a flexible price where investors help determine how much each share is worth.
How to apply IPO online and offline?
You have two ways to apply for an IPO: online and offline. If you choose the offline method, you fill out a form and give it to your IPO banker or broker.
On the other hand, applying online is easier. You log in using the trading system provided by your banker or broker. This method saves time because most of your details are automatically filled in from your Demat Account, making the process quicker and simpler.
Choosing the Right IPO
The first significant choice you will make is which initial public offering (IPO) to pursue. IPOs are not always successful, therefore, it is important to consider your options thoroughly before making an investment. Your decision should be based on two primary considerations: personal and business factors.
Knowing your own investing preferences is a personal factor. Determine your risk tolerance and the amount you may invest. Prior to launching an IPO, consider your long-term financial objectives as well.
Examining the business’s IPO launch information is one of the company criteria. Their prospectus is similar to their business strategy, so carefully read it. Check out the company’s past performance and future prospects. This enables you to determine whether it is a good investment.
Arranging for funds
Make sure your financial affairs are in order before making any investments. To invest in an IPO, you can borrow money or use your savings.
The important thing is to be certain of the amount of money you are investing. It’s dangerous to invest in initial public offerings (IPOs), and you could lose your money if the business fails. Consequently, only make investments you can afford to lose.
Opening a Demat and Trading Account
While a trading account enables you to freely exchange shares, a demat account keeps an electronic record of every purchase you make.
A Demat account can only be used to purchase shares. To sell shares, you will also require a trading account. It is recommended that you open a Demat and Trading account simultaneously for easy processing.
How to Purchase IPO Shares- The application process
Using your bank account or Demat, purchasing IPO shares is simple. By allowing you to open your bank, trading, and Demat accounts simultaneously, some banks make things even easier. You can begin investing in initial public offerings (IPOs) as soon as you are trading and your Demat accounts are operational.
You no longer have to waste your time writing demand drafts or checks. It’s really simple thanks to a neat feature called ASBA (Application Supported by Blocked Account). Banks are permitted by ASBA to reserve funds in your account for the purchase of shares. From the moment you apply until the shares are distributed, they lock in the money.
You might not always receive as many shares as you had hoped for. Only the sum for the shares you receive—not the entire blocked amount—will be deducted from your account in that case. For example, only 40,000 INR will be deducted from your account if you applied for shares for 1 lakh INR but were given shares costing 40,000 INR instead.
Bidding and Allotment of shares
Before buying shares, you must place a bid. You can only bid for shares in multiples of the lot size mentioned in the prospectus. The lot size is like the minimum number of shares you can bid for when applying for an IPO. The company sets a price range, and your bid must be within that range. Good thing is, you can change your bid if you need to.
If you get the full allotment of shares, you will get a Confirmatory Allotment Note (CAN) within six working days.
After the shares are assigned to you, they will show up in your Demat account. Now, you just wait for the company to be listed on the stock exchange before you can start trading.
Now that you know the ropes of how to invest in an IPO, go ahead and start your investing journey!
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