InvestorQ : What is the process to apply for an IPO?
Lavanya Subramanian made post

What is the process to apply for an IPO?

Answer
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Archita Jajjoo answered.
1 year ago


There are two important questions you need to address here: How to apply for IPO online and the IPO application process. Here is what you need to know when you apply for an IPO of a company…

IPOs come in 2 varieties viz. Fixed Price IPOs and Book Built IPOs. In a fixed price IPO, the company fixes the IPO price in advance as the sum of the par value and the premium. You can only apply for the IPO at that price. In a Book Built issue, the company will only provide an indicative price range for the IPO and the final price of the IPO will be discovered through the book building process. Nowadays, most of the IPOs are predominantly through the book building route only.

IPOs have 3 classes of investors’ viz. Retail, HNI and Institutional categories. Investments up to Rs.2 lakhs in an IPO are classified as retail investors. It is beneficial to invest in the retail quota because the allotment methodology is designed by SEBI to ensure that as many retail investors as possible get allotment. Thus, your chances of allotment are much higher in this case. In case of HNIs the allotment is proportionate while in case of institutions the allotment is discretionary.

You can bid for IPOs through the offline method or through the online method. In the offline method, the form is filled up in physical form and submitted to the IPO banker or to your broker. In an online application you can log in the application directly through the trading interface provided by your broker. The advantage in the online IPO is that most of your data is automatically populated from your trading / demat account thus reducing the clerical effort from your side. That largely simplifies the online IPO application form fill-up process. In fact, IPO online application is the preferred mode.

Under the book built method, the basis of allotment is finalized within 10-12 days and the demat credit also happens within a couple of days after that. Once the shares are in your demat account and the stock is listed on the exchanges, you are free to sell the shares. As stated earlier, you need a trading account to sell these shares.

There is a very important aspect you need to understand about applying for IPOs. SEBI has now made available a facility called the ASBA (Applications Supported by Blocked Amounts). The advantage of an ASBA IPO is that you do not have to issue a cheque or pay any money for the IPO till the allotment is made. The amount to the extent of your application is blocked from your bank account and on the allotment day, the amount will be debited only to the extent of the shares allotted. That means if you applied for shares worth Rs.1.50 lakhs and you got allotment for only Rs.60,000, then only Rs.60,000 gets debited to your account and the block on the remaining amount is removed from your designated bank account.

The IPO application process has become substantially simpler in the last 10-15 years. In the process it has substantially empowered the retail investors across India.