How to invest in IPOs?

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Updated: March 15, 2018 4:15:16 PM

Looking to invest in that upcoming IPO, but not sure of how to go about the process? We take you through the process of investing in IPOs.

Mini-ratna Midhani, Mishra Dhatu Nigam Limited, midhani, IPO, initial public offeringUsing ASBA facility, the investors apply to the IPOs without the use of cheques and demand drafts. (Image: Reuters)

Looking to invest in that upcoming IPO, but not sure of how to go about the process? We take you through the process of investing in IPOs.

What is an IPO?

A company raises capital by selling shares in an IPO, and investors can decide whether to invest in these issues after going through the company’s prospectus on SEBI’s website. The investors can also look at various brokerage research reports before deciding to invest. We take a closer look at the process of investing in IPOs, once the decision to invest has already been made.

The process

Firstly, investors will necessarily have to open a demat account for investing in the IPOs. For opening the demat account, investors can approach any depository participant, registered with CSDL (Central Depository Services Ltd) or NSDL (National Securities Depository Services) such as Kotak Securities, HDFC Securities, ICICI Securities etc. Typically, these DPs offer a demat-cum-trading account which links together the investors savings account, generally referred to as a 3 in 1 account. A demat account allows the investors to hold stocks in an electronic form, while a trading account allows them to buy and sell securities. The basic documents required to open a demat account include PAN card, Aadhaar card, address and identity proofs.

ASBA facility

Once the trading-cum-demat account is activated, it is imperative to be aware of Application Supported by Blocked Amount (ASBA) facility, which is compulsory for IPO applications. Using this facility, the investors apply to the IPOs without the use of cheques and demand drafts, at the same time giving authority to bank to block the amount in the savings account.

Lot size

Finally, the investors will have to check the lot size before placing an order. Lot size is the minimum number of shares you have to apply for during an IPO. Thus, if the lot size is 10, investors will have to place orders for a minimum of 10 shares, and in multiples of 10 thereafter.

Price band

There is a bid price too. The company usually sets a price band. The upper limit is known as the cap price while the lowest is called floor price. You have to bid for shares in this price range. The investors can choose to place a bid for the minimum number of shares within this price range. Once the bid has been placed, the investors will have to wait for issue to list on the exchanges which typically happens with 10 days of the IPO. The investors will typically be notified 2 days prior to listing date if they are notified the shares or not.

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