How To Invest In IPO Online?
Last Updated: Jan -21-2020
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Companies that are Private limited tend to go public which is when the role of investing into IPO comes into play. An Initial Public Offering (IPO) is the process by which company collects funds from the market by going public. IPOs have become a popular mode of investment considering the fact that the investor can grow rapidly within a short span. It gives an opportunity to the investor to purchase shares from a company that is planning to go public.
IPOs allow companies to gather funds from the public. These funds may be needed for various reasons such as expansion within or outside the country, diversification into newer fields, or even because companies are looking to repay their loans. Fortunately, all of these funding requirements can be fulfilled with the help of IPOs. In this blog, we will understand what are IPOs and how to apply for IPOs online?
But first things first! Let us understand how does a company raise funds through IPOs?
IPO comprises of a variety of sub-items as mentioned below:
New Offer: Assume that a company is raising funds for the first time through the IPO market. It will be considered as a new offer while the stocks of the company get listed. The new offer leads to expansion of the capital base of the company.
Follow-On Offer: In this situation, the company is already listed in the exchanges but looks for some additional funding from the market.
Offer for Sale: The existing promoters and anchor investors sell part of their holdings in the IPO and raise required funds. The government companies are the most common examples that gather funds through offer for sale.
Any adult who is capable of entering into a legal contract is eligible to apply for IPO in a company. The only requisite is to have a PAN card issued by the Income Tax department and a valid demat account.
IPOs come in two varieties –
- Fixed Price IPOs – The company fixes the IPO price in advance as the sum of the par value and the premium. Investor can apply for the IPO at that price only. Investor needs to deposit a duly-filled application form and a cheque or demand draft for the required amount with the designed collecting bankers.
- Book Built IPOs – The company provides an indicative price range for the IPO and the final price of the IPO is discovered through the book building process. In this process, the allotment is finalized within 10-12 days and the demat credit also takes place within few days after that.
Once the shares are in your demat account and stocks are listed on the exchanges, you can start trading.
An IPO order cannot be placed directly through your broker. Investor can place the order through a bank that offers ASBA facility. Application Supported by Blocked Amount (ASBA) is an efficient way of applying in IPOs. ASBA is a mandate for IPO bidding made by the Securities and Exchange Board of India (SEBI). When you invest through ASBA, the funds get blocked in your account for IPO trading. This facility is critical as it authorizes banks to block the necessary amount in your bank account. The money is credited from your account only when you are allotted shares in the IPOs. Until the finalization of acceptance or rejection of the application, the application money remains blocked in the bank account. Meanwhile, you can keep gaining interests on the funds that are locked in your account.
A self-certified syndicate bank (SCSB) is the bank that offers the facility of applying through the ASBA process. ASBA is available in both physical and demat forms and in order to avail the ASBA facility all you need to do is to specify your PAN, demat account number, bank account number, and bidding details. ASBA is accepted only by those SCSBs whose names appear on the SEBI’s website. An SCSB will identify its designated branches (DBs) at which an investor can submit the ASBA form and can also identify the controlling branch (CB). Each ASBA form has a unique application number which should be kept safe with the investor.
Investors can also download and print the ASBA application forms from the website of BSE and NSE.
In order to start the IPO process, you must first obtain an IPO/FPO (Follow-on Public Offer) application form, which is available both online and offline with share brokers, lead managers, syndicate members, and collecting banks. If required, you can also pick up a physical copy from the vendors at the major commercial streets (BSE, NSE).
It is advisable that you must have a demat account which allows you to receive shares in the physical form. Also, the shares issued through IPO/FPO are tradable only in the demat form. It is also compulsory that all IPOs/FPOs of any security of issue size of Rs 10 crores or more must be in the demat format. Hence the qualified institutional buyers (QIBs) and large investors must have a demat account to carry out IPO trading.
The demat account can be opened through two depositories in India – National Securities Depository Ltd (NSDL), and Central Depository Services Ltd (CDSL). While filling the form, ensure that you fill your DP ID and client ID details correctly. Also mention your PAN number in the form.
The greatest advantage of online IPO is that most of the trading data is automatically synced from your trading or demat account, reducing any manual efforts. This simplifies the overall process and makes the IPO online application a preferred mode of trading.
Here are the steps to apply IPO Online:
- Log-in to your online net banking account
- In the investments section, click on the IPO/ e-IPO option
- Fill out your depository details and bank account details and complete the verification process
- A screen appears titled “Invest in IPO”
- Select the IPO that you would like to invest
- Enter the number of shares and their bid amount
- Read the ‘terms and conditions’ before you place the order
- Confirm and place your order by clicking “apply now”
Over the years, the entire process of IPO application has simplified to a great extent, empowering the retail investors across India. Applying for IPO is an easy task; so, the next time you want to invest into IPOs, just follow the steps mentioned above. If you are fortunate enough, you will gain a rapid growth and gather desired amount of funds for your company.
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