Know the Benefits of Pre-Apply in IPO

2 January, 2025

Synopsis

• Pre-applying for an IPO allows you to submit a subscription request before the IPO date.

• Once limited to institutions, this process is now open to individual investors

• You can secure an early stake in the company.
  
  

As an avid investor who seeks new investment avenues, you must have considered investing in Initial Public Offerings (IPO). It may be a good investment option to participate in a company’s financial growth. However, you may face hassles in obtaining shares when an IPO gets oversubscribed. Fret not. You can avoid this situation by pre-applying for an IPO. Read on to know more about the benefits of pre-applying IPO.

What is Pre-applying for an IPO?

When a company decides to go public by issuing shares to the public for the first time, investors have the opportunity to subscribe to these shares. Pre-applying for an IPO involves submitting a subscription request before the actual IPO date, allowing investors to secure their position ahead of the IPO. This strategic approach enables investors to purchase shares of the company before its IPO officially takes place. Brokerage firms typically facilitate this process as they handle the IPO subscription. In the past, pre-applying for IPOs was primarily available to banks, hedge funds, private equity companies, and other select categories. However, this is no longer the case; individual investors can now also participate in the pre-application process for IPOs

What are the benefits of pre-applying for an IPO?

• Locking in the offer price

Companies determine the offer price for their IPO shares before the IPO begins. If you pre-apply, you can lock in the offer price to ensure that you get the shares at a specific price.

• Avoid last-minute rush

During an IPO subscription, you may find yourself stuck in a race where investors are rushing to place their orders. By pre-applying, you can avoid this last-minute rush. Your application is already in, and you can sit back and relax.

• Potential for first-day gains

Pre-applying for IPOs can provide an opportunity for potential gains on the first day of trading if you are allotted shares in the IPO. If the demand for the shares is strong and the stock price appreciates, you could benefit from this price increase.

• Increased chance of allocation

By submitting your bid in advance, you share your interest in the IPO. It can potentially increase your chances of shares being allocated to you, especially in the case of an IPO getting oversubscribed.

• Informed decision-making

When you pre-apply for an IPO, you can get access to the company’s prospectus in advance. This can provide you with substantial information about the company’s operations, finances, management, growth strategies, and other relevant information. You can use this information to analyse your investment options.

• Better business models

You can gain access to companies that have demonstrated their ability to handle the challenges of being a privately owned company and are now seeking to capitalise on the public markets to raise funds for expansion. These companies often have well-defined strategies, revenue streams, and a clear vision for the future.

• High potential for significant returns

By pre-applying, you position yourself as an early stakeholder in the company. Early entry can provide substantial gains if the company’s stock price appreciates over time. Moreover, your shareholdings are not affected by the heightened demand for the shares later on.

Although pre-applying for IPOs offers various benefits, you have to bear in mind that not all IPOs are successful. There is always a level of uncertainty associated with trading in the stock market, especially when investing in relatively new companies. Therefore, it is crucial to conduct thorough research, carefully analyse the company’s strategies, and evaluate your risk tolerance before participating in an IPO.

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​​​​​​​* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Investments are subject to changes in tax laws. Please contact a professional consultant for an exact calculation of your liabilities.