Types of Investors in IPO
Retail Investors: Individual investors who apply for IPOs with a small amount (usually below a specific limit, e.g., INR 2 Lakhs in India).
Qualified Institutional Buyers (QIBs): Large institutional investors like mutual funds, insurance companies, etc.
High-Net-Worth Individuals (HNIs): Wealthy individuals who apply for a higher number of shares.
Employees and Promoters: In some cases, employees of the company may get a special allocation.
3. Steps to Apply for an IPO
Step 1: Open a Demat and Trading Account
To participate in an IPO, you must have a Demat (Dematerialized) account and a trading account with a broker. These accounts are needed to hold the shares electronically and trade them once they are listed.
Some brokers offer an integrated platform for IPO applications. Ensure your accounts are active before the IPO opens.
Step 2: Register for the IPO
During the IPO application period (usually a few days), you can register for the IPO through your broker, bank, or online trading platform.
Fill out the necessary forms and provide details such as the number of shares you want to apply for, your bid price (if applicable), and the payment method.
Step 3: Choose the Application Method
Fixed Price Offering: In this case, you apply at a fixed price decided by the company.
Book-Building Offering: In a book-building process, you can place a bid within a specified price range, and the final price will be determined based on demand. The shares are allotted based on the bids placed.
Step 4: Make Payment
The payment can usually be made via UPI (Unified Payments Interface), ASBA (Application Supported by Blocked Amount), or through bank transfers.
In a U.S. IPO, payments may require wiring funds into an escrow account.
Step 5: Submit Your Application
Submit the IPO application before the closing date. Make sure to double-check the details, including the number of shares and the application amount.
4. Increase Your Chances of Allocation
Retail Investors: If you apply in the retail category, you usually have a higher chance of getting an allocation because the number of shares allocated to retail investors is typically smaller, and demand can exceed supply.
Bid at the Cut-Off Price: In a book-building IPO, the cut-off price is the final price at which shares are allocated. Bidding at the cut-off price gives you the chance of receiving shares at the final price if your bid is successful.
Early Application: Apply as early as possible, especially if the IPO is expected to be oversubscribed. However, in most cases, the allotment process is random.
Apply Through Multiple Channels: You can apply through your broker, banks, or online platforms. The more channels you use, the higher your chances of securing an allocation.
For High-Net-Worth Individuals (HNIs): HNIs are often allotted shares based on the larger number of shares they apply for, but they may also face restrictions if the IPO is oversubscribed.
5. Allocation and Refunds
After the IPO closes, the allotment process begins, and you will be notified about the number of shares allocated to you. This notification may come via your broker or bank.
If the IPO is oversubscribed, not all applications will receive the full number of shares requested. The shares are often allocated on a pro-rata basis or via a lottery system.
If you do not receive an allocation, your money will be refunded, typically within a few days.
6. Check the Results
After the IPO allotment, you can check whether you received shares by logging into your Demat account or by visiting the IPO registrar's website.
In some countries, the IPO registrar provides an online portal where you can check the status using your application number.
7. Listing and Trading
Once the shares are allotted, they will be credited to your Demat account, and you can begin trading them once the company is officially listed on the stock exchange.
Common Methods of IPO Allocation:
Pro-rata Basis: Shares are distributed proportionally based on the demand in each category (retail, institutional, etc.).
Lottery System: If the IPO is oversubscribed, shares may be allocated via a random lottery system, especially in the case of retail investors.
8. Key Points to Keep in Mind
Research: Always research the company and its financials before applying for an IPO.
Oversubscription: If the IPO is oversubscribed, your chances of getting an allocation decrease.
Lock-in Period: Some IPOs may have a lock-in period, meaning you cannot sell the shares for a specified period after listing.