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    Amid a rush of IPOs, here’s how to navigate the offers

    Synopsis

    To apply for an IPO, you need to have a demat (dematerialised) account with a depository participant. A demat account to hold shares is paperless and can be opened online with a broker of your choice. Once this is done, there are two ways in which you can apply for an IPO.

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    Q: How can you apply for an IPO?
    A: To apply for an IPO, you need to have a demat (dematerialised) account with a depository participant. A demat account to hold shares is paperless and can be opened online with a broker of your choice. Once this is done, there are two ways in which you can apply for an IPO. You can either do it through the broker’s website or ask the broker to bid for the required shares on your behalf.

    Once this bid is placed, you can authorise this transaction through UPI (unified payment interface) using BHIM, Gpay, Phonepe, etc. Some banks also give the option of applying for IPOs using ASBA (application supported by blocked amount) by logging on to the website and filling in the details. Printed forms are also available with some brokers and one could use them as well. In all the cases, when you apply, money is blocked in your linked bank account and does not move out. Money will be debited only, if successful allotment is made in your account.

    Q: When should you apply for the IPO?
    A: All IPOs are open for application for three days. All applications need to be submitted and UPI authorisation needs to be done before 5 pm on the last day of the issue. Investors need to be extremely careful while filling in details like PAN, demat account number, no of shares applied for, and the cut off price when making the online application. If any of these application details are incorrect, there could be a technical rejection and your application could be rejected. Distributors suggest that investors fill the application form on the first or second day itself, because in case there’s a rejection, they will have the chance to rectify it on the third and last day of the IPO.

    Q: How many shares should an investor apply for in an IPO?
    A: With most issues getting oversubscribed, distributors suggest that retail investors are better off applying for one lot only. As per rules, the regulatory allotment process treats all retail applications (which are for amounts less than Rs 2 lakh) equally. Hence, there is no point in making a big application in case of oversubscription. Hence, in case of issues which are likely to be oversubscribed, one should go for minimum bids. That will help to save money which can be used in other IPOs as well.

    Q: How many applications can an investor make?
    A: Only one application is allowed against a permanent account number (PAN). Do not make multiple applications through different brokers or banks, as all will have the same PAN and are liable to be rejected.

    Q: What is the bid / cut off price in an IPO? What should a retail investor do?
    A: Cut-off price means the investor is willing to pay whatever price is decided by the company at the end of the book-building process. Once the application is made at ‘cut off’, the investor has to bid at the highest price band. In case the IPO prices lower, the excess amount will be refunded. Distributors suggest investors bid for an IPO at the cut-off price.

    Q: What is ‘lot size’ for an IPO?
    A: Lot size is the minimum number of shares an investor can apply for. Applications must be made in multiples of this lot size. For example, if the offer price is Rs 500 and the lot size is 30, investors can bid for 30, 60, 90, 120 shares, and so on. However, the minimum investment would be Rs 500*30 = Rs 15,000.

    Q: What information should an investor look for before applying?
    A: Due to buoyancy in the secondary market, many investors tend to blindly apply for IPOs, thinking that the stock will list above the IPO price. Many investors simply go by the grey market premium rates flashed on social media channels. However, wealth managers say that investors should not apply without research or advice, as there have been instances where IPOs have listed at a discount to the offer price. Investors can do some basic research by going through the DRHP (draft red herring prospectus), which is available to everyone. They could check the promoter's track record, company's profitability, margins and issues on corporate governance, and check what the promoter is going to do with the funds raised. They could also consult advisors, brokers and refer to their notes.

    Q: How do you check if you have been allotted shares in the IPO?
    A: Once an IPO closes for subscription, investors need to check whether shares have been allotted. The IPO registrar is in charge of the allotment process, and the date on which the allocation status will be made, is displayed on the registrar’s website. Investors can click and check if they have been allotted shares once the results are displayed. Investors also get an email and SMS from the registrar on the allotment. If they are allotted shares, they will be credited to the demat account and can be sold once they are listed.



    ( Originally published on Nov 20, 2023 )

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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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