How to Invest in an IPO – A Complete Guide

Investing in a stock market can be extremely challenging, especially if you are unaware of in and out of the company. IPO, aka initial public offering, is the only way for private companies to go public. If you are looking forward to growing with a company, then you should definitely know how to invest in IPO. So, to make it easy for you to understand how you can invest in IPO, we are here with a comprehensive guide on IPO. 

However, before we dig into how to invest in IPO, let us take you through the reasons why you should invest in IPOs.

Why Invest in IPOs?

Following are the reason why you should invest in IPOs:

• For someone who is seeking long-term investments in the market, IPO investments are the right option.
• If you invest in the right IPO that too at an early stage, you are eligible to own stakes in a renowned and promising company that may rise more in the coming years.
• For people who wish to make a refined form of investment, IPOs are the best thing to invest in. This is because their price per security is open and similar to all public investors. 

Must Have for the Applicant 

• Demat account
• Trading account
• The mobile number linked to the bank account
• UPI ID

Now, we’ll talk about investing in IPO. Read this blog till the end to learn more about IPOs.

How to Invest in an IPO?

Here’s what all you need to do while investing in IPO:

Choose the IPO You Want to Invest On

The first and foremost thing to do is select the IPO you wish to invest in. You can even shortlist some of the companies and then go through various companies’ prospectuses. To find these prospectuses, you can go to the Securities & Exchange Board of India’s website (SEBI). After going through the prospectus, you will have a fair idea of the company’s business purpose and plan.

Demat-Cum-Trading Account

This is a must to store your financial securities electronically and your stocks. If you don’t have a demat account, you can open it just by submitting your Aadhaar card, PAN card, ID proof, and address. 

How to invest in an IPO – Application Process

Next up, we have an application process. One can apply for IPO either via his bank account or trading account. After you activate your trading-cum-demat account, be sure you are aware of the Application Supported by Blocked Amount (ASAB) facility. This ASAB is mandatory for IPO applications. ASAB is an application to authorise your bank to block money in your bank account and is accessible in demat and physical form. With this, you need not use cheques and demand cheques. You just have to specify your demat account number, bank account number, PAN, and bidding details in the application.

Bidding

In the prospectus, you have to bid while you apply for the shares, as per the lot size, which is the minimum number of shares you apply for during IPO. 

Every company has its bid price, where the highest bid is known as the cap price, and the lowest is known as the floor price. Even though you are free to revise your bid during IPO, blocking the money required while you bid is essential. This blocked amount is then status in your account, and you earn interest on the amount till allotment. 

Allotment 

As discussed earlier, the demand may outstrip the real number of issued shares. Due to this, you may get comparatively fewer shares than you actually asked for. Also, if you don’t manage to get any share, the bank will unlock your bid money.

However, if you get a full allotment, you will receive a Confirmatory Allotment Note (CAN) within 6 working days. This will happen after the closure of the IPO process, aka book-built issue. And once the shares get credited to your demat account after they are allotted to you, you will have to wait for the stock exchanges listings. This will take only 7 days from the finalisation of the issue.

We have already talked enough about how to invest in IPO in detail. Now, let us dig more into IPO investments and know the factors you must consider before investing in IPO.

Factors to Consider Before Investing

• The first thing you need to determine is your essential investment criteria. These criteria include your long-term financial goals, risk appetite, and investment capital. 
• Then you must exercise caution before you make your choices for IPO listings which includes going through a round of research about the company’s valuation and historical and fundamental performance. 
• Always look up to companies with strong brokers. 

So, after these factors, the most asked question about IPOs is how do we check upcoming IPOs?

How to invest in an IPO – Looking Up for Upcoming IPOs

There are various sources that one can refer to for checking upcoming IPOs. Some of them are as follows:

• Stock exchange websites to know about the upcoming IPOs. Various stock exchanges have a separate section of IPOs where you can get accurate information about the IPOs. These websites also provide IPO prospectus and IPO calendars. 
• One can also refer to other random websites to have authentic news under the “ipo list” or “new ipos” section. 
• The other way is to check the official websites of brokers, aggregators, blogs on stock market information, etc. There are also discount brokers, for instance, 5paisa.com, where you can find analysis and complete details on the upcoming IPOs. 

The Bottom Line

Investing in IPOs is worthy, but be extremely careful while doing that. You must thoroughly study the company, its financial goals, background, future aspects, and everything else. Apart from this, always have a plan for each and every step before you invest in any IPO. 

Hopefully, it will be easy for you to know how to invest in IPO. Do follow Financebazaar for much such information, and tell us how you like this blog.

Also, check out – Top 10 individual investors in Indian Stock Market