How to Invest in an IPO in India

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How to Invest in an IPO in India

The initial public offering is the first fund-raising attempt through public investment. IPO allows the firms to raise funds for expansion of the business. They may also use the funds as working capital. We have already discussed tips for investing in IPO.

Here, we give an overview of process of applying or investing in IPO. All the IPOs are not open to the public in general. Certain IPOs are open for general public as well financial institutions. Its very important know invest in an IPO.

Step wise Guide to Invest in IPO

Here is a complete step-wise guide to the buying process of an IPO. The process can be through online or offline modes.

1. Keep a Track

Firms advertise about their upcoming initial public offerings. Before investing, check the firm’s past records and statements. The firm’s future plans and objectives are also important to know for an investor.

2. Application Form

Fill up an application form for IPO allotment. You may get it from the brokers or agents selling mutual funds. Also, enclose a cheque for the value of the shares you want to buy. Check the lowest limit of the number of shares you should buy. The application form will contain all the information. Submit the form in a manual way. Also, enclose a copy of your PAN card if the amount is above Rs. 50,000/-. The trading account is not mandatory for IPO investment. But you may need it to sell the shares at a later stage. Demat account is a must while applying for IPO.

3. Online Application for IPO

Online IPO application facility is available with ASBA. ASBA refers to Applications supported by Blocked Amount. The benefit of online ASBA way is that you will pay money only when the shares are yours. In the online application, an individual can use his/her internet banking to apply. Keep a check on online IPO allotment status.

Types of IPO Applicants

The underwriters decide the type of investors who can apply for the IPO of the firm.

  1. RII – Retail Individual Investor applies for small value.
  2. NII – Non Qualified Institutional Investor applies for large value. NII cover NRIs, firms, societies, and trusts.
  3. QIB – Qualified Institutional Buyers means financial institution having SEBI registration.

Risk Factor in IPO Investment

Likewise other investment vehicles, IPO also carries a risk factor. Sometimes, data of the firm is not available for proper research. No investor knows what will be the future value of the firm. Most of the firms are through a growth period and hence unstable. Do read the prospectus of the firm and how it will use the funds. Do not fall into the trap of the fake hype about the firm. Do your own research and stick to the figures and facts. Check the firm’s promoter’s background and reputation. Invest as per your risk bearing capacity.

Not all the IPOs get good success. Some IPOs crash after the hype. Many investors face huge losses by selecting wrong initial public offerings. Hence, one should be very careful while choosing the firm. Investing in IPO needs to be a well-planned decision.

By, Trading Fuel


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