How to invest in an initial public offer (IPO)

An initial public offer (IPO) is one way to invest in stocks, which in essence involves a company selling shares to the public before these same shares can then be sold among buyers and sellers on the stock exchange. The lure of an IPO lies in the assumption that listing on stock exchanges will unlock value and IPO investors will gain manifold in a short period. Retail investors also tend to find IPO investing simpler, as they don't have to deal with the nuances of secondary market price changes, at least while buying. If you are looking to participate in an IPO, here is what you need to know about the process.

Do your research
Read up on the company issuing the shares. At the time of an IPO, a company will publish a prospectus with details about the business, the industry it operates in, company financials and pricing of the issue. Be sure to get your hands on this document. It is available online on exchange websites (BSE and NSE), or on various broking websites.

An IPO application is made through the ASBA (applications supported by blocked amount) format where the amount needed for the IPO is blocked in your bank account, but not debited. You also need to have a demat account with the Central Depository Services (India) Ltd (CDSL) or the National Securities Depository Ltd (NSDL), which can be opened either directly or through a participant like a broker or a bank.

How to invest
You can either invest online or through a physical application form. You can get a physical form from your broker, distributor or from a bank branch. Among other things, you will need to specify the IPO price range and amount, and your bank and demat account details. If you have taken the form from a broker, the broker code will most likely be stamped on the form which then needs to be submitted to that same broker. Banks accept forms from different codes, but you must have a valid account with the bank through which you are submitting the form. Online applications can be made through the broker, distributor or bank’s websites. If your personal details are uploaded, you only have to fill in the price range and the total amount and click on ‘apply’.

If your personal details are uploaded, you only have to fill in the price range and the total amount and click on apply. Make sure your personal details and the demat account number are updated and correct.

Share allotment
It takes about 10 days from the IPO closing date for the issue to list. Two to three days before listing, you will likely have the allotted shares in your demat account. If the IPO is oversubscribed, you will not get the quantity you applied for; allotment is proportionate to the oversubscription of the IPO. Once the shares are in your demat account and the IPO is listed, you can buy and sell shares of the company as you please in the secondary market.

In arrangement with HT Syndication | MINT

This article was originally published on October 17, 2019.