Investing in an IPO (Initial Public Offering) can prove to be very beneficial for you. As IPOs hold the potential to grow and earn you some big bucks within a short period. But before you start investing in IPO, you must understand how its buying process works. Through this article, we answer all questions on how to buy IPO in detail. Equipping you will all the information and expertise you need to make an informed investment.
About IPO
As the name suggested IPO, Initial Public Offering means that the shares of a company are offered for public purchase for the very first time.
There are two types of IPOs – fixed price offering and book-built offering. In the fixed price offering, the share price is set by the company pre- hand, while in a book built, the share price may vary as the bids placed by the investors determine the price.
How to apply IPO online and offline?
You can apply for an IPO both online and offline. If you wish to apply for an IPO offline, you need to submit a form to your IPO banker or broker to initiate the process.
On the other hand, when applying for an IPO online, you need to log in using the trading interface provided by your banker or broker. The online method is much simpler than the offline method as most of your information is automatically updated on the form through your Demat Account. Saving you a lot of time and effort.
How to apply for IPO?
Now that you have better about the concept of IPOs let us look at the steps to buying IPO.
Choosing the right IPO
Picking the right IPO is the first and the most crucial step. You need to remember that not all IPOs are good. Think wisely before choosing to invest in an IPO. Two essential aspects drive your decision – personal factors and company factors.
Personal factors – Be very clear about your investment criteria. Determine your investment capacity and risk appetite. Consider your long-term financial goals before going ahead with the IPO investment.
Company factors – Gather information about the IPO initiating company. Read through their prospectus carefully. Look how well the company has performed previously and what are their expansion plans are.
Arranging for funds
Having your finances in order is a must before making any investment. You can use your savings or borrowed capital to fund your IPO investment. However, be sure about the money you invest. As IPOs involve high risk. If the company goes into loss, you are likely to lose your money.
Opening a Demat and Trading account
A Demat Account holds a record of all the purchases you make in the electronic format, while a trading account allows you to trade shares freely. With a Demat account, you can only buy shares. At the same time, you will need a trading account to sell shares. It is advisable to open a Demat and Trading account simultaneously for easy processing.
How to purchase IPO shares – the application process
You can purchase IPO shares with your Demat or bank account. Some banks offer to open trading, Demat and bank account under the same bunch. Once you have activated your trading and Demat account, you can make investments in IPOs with ease.
You can now buy IPO shares without going through the trouble of writing cheques and Demand Drafts with ASBA. ASBA, Application Supported by Blocked Account, is a facility introduced by the SEBI to facilitate easy trading for IPO applicants.
ASBA allows banks to block money in your account for the purchase of shares. The funds will be secured from the day of application to the day of the Allotment of shares. Sometimes, it might it possible that you get a lesser number of shares than what you applied for. In that case, the amount only for the shares allocated will be debited from your account and not the total blocked amount.
You can read more about investing in IPOs here.
Bidding and Allotment of shares
To buy shares, you need to place a bid prior. Note that you can bid only as per the lot size mentioned in the prospectus. The lot size is the minimum quantity of shares you can bid for when applying for an IPO. The company sets a price band for the bid price, and you can make bids only in that price range. Remember, you can revise your bid anytime.
If you hit the jacket and receive the full Allotment of shares, you will get a CAN, Confirmatory Allotment Note within six working days.
Once the shares are allocated, they will be credited to your Demat account. The next step is to wait for the company to be listed on the stock exchange to initiate trades.
Now that you have all your questions answered on how to invest in IPO, start investing right away.
Invest smart by opening a Demat Account with HDFC Bank today! Looking to open a Demat Account? Click here to get started.
*Terms and conditions apply. This is an information communication from HDFC bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
