What is IPO?
When a company sells its shares to the public for the first time, it is called Initial Public Offering (IPO).
In IPO, the company sells its shares to the people and raises money from them in exchange for those shares, in this way the company gets the funds and the investors who buy the shares of that company become the shareholders in that company. .
For example, in 2017, D Mart, which is a super market chain, had an IPO of its parent company New Super Mart, which did a fundraise of 1870 crores through IPO. And in return 10% of the company’s shares were sold.
This means in exchange for Rs 1870 crore, Avenue Supermart has given 10% stake in its company to its investor. In this way the people who have invested in Avenue Supermart become the share holders of that company.
Why does the company bring IPO (Initial Public Offering) ?
The company brings IPO mainly to raise funds. There can be many reasons for raising money such as
Expansion or to expand the company, to reduce debt, to introduce new products or services, etc.
Avenue Supermarts raised money to reduce debt and expand the company. Thus, each company may have different reasons for IPO and fundraising. You get information about why the company wants to raise money by reading the company’s read hearing prospectus.
In this, you get a lot of information from small to big about the company that brought the IPO. Such as business details, capital structure, risk factors, promoters and management past financial data etc.
You get a lot of such information by reading the hearing prospectus. You will find the red hearing prospectus of the company bringing the IPO on the website of SEBI at sebi.gov.in.
Key Terms Used In IPO
There are two types of IPO-
Fixed Price Issue and Book Building Issue
What is Fixed Price Issue
In a fixed price issue, the company, along with the investment bank, fixes a fixed price of the shares.
And then the company offers its shares to the investor at the same fixed price and then the investor has to subscribe the shares of that company in the IPO at the same fixed price.
For example, if a company has fixed its share price at Rs 200 in a fixed price issue, the investor will have to subscribe to the IPO at the same Rs 200/share to invest in that company’s IPO.
What is Book Building Issue
In book building issue, the company decides a price band with the investment bank and in that price band the investor has to submit his bill.
Avenue Supermart IPO was also a book building issue Price band in Avenue Supermart IPO
295 to Rs 299.
The lowest price in this band is called the floor price and the highest price is called the cap price.
Avenue Supermart IPO had the lowest price of 295 which was its floor price while 299 was the highest price which was the cap price.
What is Floor Price and Cap Price
The maximum difference between the floor price and the cap price can be up to 20%. In the case of Avenue Supermart, the difference was only 1.3%.
The IPO is open for 3 to 10 days and is usually open for only 3 days, during this time period the investor has to apply to buy the shares.
If an IPO is a fixed price IPO, then whatever will be the fixed price of that IPO, you will have to apply to buy the share at the same time.
If it is a Book Building IPO, then you can bid on anyone in whatever the price band of that IPO will be and it is not that if you have placed the bid, then you will get the shares, for this there is an allotment process.
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How to Apply for an IPO
Earlier you could apply in IPO only if you had demat account with full time service broker or you could apply through online netbanking.
But today all brokers give the facility to apply IPO from their trading platform.
If you have demat account of any broker then you will get notification of new upcoming IPO. And you can login to your trading platform and apply for IPO.
To apply in IPO, investors have been divided into three categories –
Retail, HNI investor and Institutional investor (FIIS and DIIS)
Investment up to Rs 2 lakh in IPO has been kept in the retail category. Investing in retail quota is beneficial as SEBI has ensured that retail investors get maximum allocation and the possibility of getting allocation in the retail segment is very high. happens more.
You can bid for IPO through offline mode or online mode.
In offline mode, the form has to be filled manually and the form is submitted to the ipo banker or your broker.
The process of applying ipo online has been made very easy. In fact, IPO online application has become the most preferred mode.
In book built ipo, the allotment process is completed in 10-12 days and after that the share gets credited in your demat account within a few days.
Once the shares are credited to your demat account and listed on the stock exchanges, you are free to sell the shares. You need a trading account to sell these shares. Which you can get from your broker.
What is ASBA in IPO (What is ASBA?)
To apply in IPO, SEBI has provided a facility which is called ASBA. ASBA meaning in Hindi is (Application Supported by Blocked Signs).
The advantage of an ASBA IPO is that you do not need to issue a check or pay any money for the ipo till the allotment is received.
The amount to the extent of your application is blocked from your bank account and on the day of allotment, the amount will be withdrawn only up to the extent of shares allotted.
This means that if you have applied for shares worth Rs 1 lakh and you got an allotment for only Rs 50,000, then only Rs 50,000 will be debited to your account and the balance is debited from the bank account.
The IPO application process has become a lot simpler in the last 10-5 years. This process has made many retail investors aware all over the country.
IPO Questions – Answers (FAQ)
Should I buy IPO?
IPO is a good option for investing, but you must know that not every IPO investment is suitable. Before applying in IPO, you should know about that company, try to get complete information about the company. If you are applying in ipo with the aim of earning profit on the day of listing, then please check whether ipo will be listed on premium or not? Then go and apply in ipo.
What is the cost of an IPO issue?
IPO issue price is the price at which IPOs are floated in the primary market.
When can I buy ipo stock?
When the listing of the ipo is done in the secondary market and its shares start trading on the exchange, then you can buy and sell them.
Can you buy an IPO before it goes public?
Yes, you can buy. One advantage of this is that you can buy shares at a fixed price. You can take the help of your broker who specializes in pre-IPO sales.
Where can I get information about the new ipo?
In today’s time it has become very easy to get information about ipo, as soon as ipo is about to come, you will get information about it from your broker, after that you can find out about it by visiting some of the best websites related to finace Like money control, economic times etc. Or by searching on Google, you will find many websites that have written about it.
Can I apply for IPO twice?
No, you cannot apply multiple times with the same name, PAN number and same demat account, your application will be rejected if detected. But you can apply in different demat account and in the name of other family members.
Is UPI mandatory for IPO?
No, it is not mandatory but now you can apply for IPO using UPI ID. UPI is accepted by SEBI as a new mode of applying for IPO.
How can I increase my chances of getting allotment in IPO?
You can increase your chances of getting the allotment by following these steps –
Use different demat accounts to apply for IPO.
– Select the cut off bids on the given bids to increase your chances
Do not try to apply in ipo at the last moment, if possible, apply initially.
Pay attention to minor mistakes and apply properly, your application may be rejected.
How can I buy IPO offline?
The online process has made it easier and faster to apply for ipo, but if you still want to apply offline, follow the instructions given below-
Receive IPO application form from your broker or download it from NSE/BSE website
Fill the form with the required details like properly filled bank details, demat details, PAN card number, and cut-off value.
Submit the application through your broker or bank with the ASBA (Application Supported by Blocked Amount) facility.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at firstname.lastname@example.org.