Initial Public Offering (IPO) refers to the process of issuing fresh, existing or convertible shares by a company for the first time to the general public. IPO is the way to raise capital for companies. An IPO company is not obligated to repay the raised capital to the investors. After this first issue, the company’s shares get listed on stock exchanges. It is the process when a private or unlisted company changes its status to a public company. They can be traded on public stock exchanges after the successful process of IPO.
IPO is a great opportunity for investors. They can get high returns on their IPO investments, provided it is an informed decision. Investors are entitled to get a stake in the company. It completes its IPO allotment and participates in its growth. In turn, the company pays them a part of its profit in the form of dividends.
If an investor looks for significant gains in the long run, they can stay invested in their capital for the long term. Otherwise, they can sell them on the public stock exchanges for short-term gains.
IPO Investment Procedure – How to Bid and Buy
An IPO can be a Fixed Price IPO or book building offering. Under Fixed-Price IPO, the issuer company determines the share price before it goes public. and it is mentioned in the offer document to the SEBI. Under the Book Building Offering, the company offers a bidding range for investors. and the final share price is decided later by the company.
Online IPO Bidding Process
- To begin with, you need to complete a new demat account opening process with a stockbroker and confirm that the IPO is open to retail participation. Stockbrokers keep updating their clients about the upcoming IPOs. You can select the IPO issue available for retail investors after researching well about it.
- Submit the Application Supported by Blocked Account (ASBA) to the broker. Banks allow you to block money in your bank account through this facility. The blocked amount is debited once the IPO shares are allocated. Ensure that you have sufficient funds in your linked bank account.
Interest on the blocked amount will continue to be credited to your bank account. You can even withdraw the IPO bidding with the help of your broker in case you need your money urgently.
- Enter your Demat account number to make a bid for a lot of IPO shares. You can apply for an IPO at a cutoff price or make bids within the specified range by the promoters and the company. It allows investors to make a maximum of 3 bids at once.
- Submit the Application to apply for IPO online with the required details and a reasonable bid. After submitting the Application, you will receive the IPO application number and other transaction details.
- If you make a proper bid and are lucky enough, you will get IPO shares. The shares will be automatically deposited in your Demat account.
- If not, then your bank account will be credited with the refund.
Offline IPO Bidding Process
- For offline bidding, you need to visit your bank/stockbroker.
- Fill in the IPO application.
- Mention your Demat account number along with the bid price in the application form. You need to attach a cheque to make payment.
- If you get the shares, you will automatically get them in your demat account.
Since returns and risks go hand-in-hand in the stock market so a retail investor should weigh the benefits and risks associated with an IPO.
- As an investor, you should examine the market dynamics at the time of IPO issuance.
- Read each point of the IPO prospectus carefully. It is a great source of information for investors to make an informed investment decision. Other than that, gather information from fundamental aspects of the company. Look at the financial data available for the general public.
- Ensure that you know how the company will use the raised funds. It can be for further growth prospects or debt consolidation also.
Thus, to invest in IPOs conveniently, so get ready with your online demat account.