An IPO, short for Initial Public Offering, refers to the first sale of shares of a private company to the public. Offering shares to the public helps a company in raising capital, and is a great way of acquiring funds and investors. Post the initial sale of shares, the company is no longer privately held and transitions to a public company. This route of going public from private is a great mode of investment as it has the potential of growing manifold in a short span of time. You can look for current and upcoming IPOs and invest in them for great profits. How? Just keep on reading.
Investing in IPOs:
For investing in IPO, there are a few requirements that you must fulfil. Any adult who is eligible to enter a legal contract can invest in IPO. It is crucial that you have a valid PAN card that is issued by the Income Tax Department of India. Along with that, you must have a Demat account. A Demat or dematerialized account holds shares and securities of the investor in an electronic format. The shares bought by an investor during online trading are held in a Demat account.
There are a few steps that you must follow and keep in mind for investing in IPO.
1. Do the Groundwork:
The first and foremost step for investing in an IPO is choosing the IPO that you wish to apply for. SEBI regulates the entire process of IPO, and companies need to submit to SEBI a prospectus that contains plenty of information regarding their financials, their record in the market and the reason behind issuing an IPO in India. Go through the company's prospectus thoroughly, which can be found on SEBI's site, and gather as much information as you can with regards to the company before reaching a final decision.
2. Applying for an IPO:
Application form for applying for an IPO can be obtained from brokers, distributors, bank branch, and is also available online. Fill out the form with the required details.
You can apply for IPO online as well with the help of your trading-cum-Demat account. In this case, Application Supported by Blocked Amount (ASBA) facility, an application that authorizes banks to block money in your account, is compulsory for IPO applications. Available in physical as well as Demat form, ASBA eliminates the use of demand drafts and cheques.
You place your bid as per the lot size mentioned in the prospectus (lot size= the minimum number of shares you have to apply for). The bid price usually comes in a price range, where the upper limit is called cap price and the lowest price is called the floor price. You have to place your bid within this range.
In the case of offline method, you issue a cheque for the amount you want to apply for and submit it before the deadline to the collecting banks or agents for the merchant bankers. While in the case of the online method of applying for IPO, ASBA blocks the amount required for bidding in your account. This amount will earn interest until shares are allotted.
Shares are allotted within 10 days from the closing date of the offer. Many a time, demand may outstrip the number of available shares. You may get lesser shares than you had applied for or no shares at all. But if you are lucky, you can get a full allotment. These shares will get credited to your Demat account.
What’s the next step? Wait for the listing of shares on stock exchanges.
There are many ways in which you can invest your money. You can find a number of best mutual funds to invest in as well. Opting for investment in an IPO lets you become one of the original shareholders, which means you get shares at comparatively lower prices. So, do your research, gather information about the upcoming IPO and invest your money, wisely.