Initial Public Offering or IPO is a process by which a private company gets listed and becomes public. Becoming ‘Public’ means that the company can now start selling its shares to different groups of investors for the first time.
A private company uses the IPO route to get listed on stock exchanges and raise capital from investors. The capital raised can be used to carry forward various organizational needs like meeting business goals, expansion, or clearing off debt.
IPOs are available to three different groups of investors:
Qualified Institutional Buyers (QIB)
This category mainly comprises:
After the launch of an IPO, all the bids are submitted online for further scrutiny. All the invalid and incorrect bids are eliminated and the remaining bids are considered for allotment. Now there can be two cases:
Case 1: When the registered bids are equal to or less than the total number of shares offered by the company.
Case 2: When the registered bids are more than the total number of shares offered by the company.
In Case 1, where the total number of bids is equal to or less than the number of shares, all the applicants are assigned the number of shares according to the placed bids.
There are two further scenarios in Case 2,
Scenario 1) Small Oversubscription- In this case, all applicants are assigned at least one lot of shares and the remaining lots are allotted on the basis of a lottery.
Scenario 2) Large Oversubscription- In case the IPO has received a huge number of subscriptions- large enough that it is not possible to allot even a single lot to every individual, the entire allotment of shares is done on the basis of a lottery.
After the IPO subscription period is over and the allotment is finalized, the shares get listed on stock exchanges and are traded freely in the market. Any individual can then buy and sell the share during market hours.
IPOs offer a great opportunity for investors to buy shares of a newly listed company. It is also considered a great opportunity to earn a significant profit on the listing day if the stock price opens with a higher premium. Investing in IPOs is extremely easy these days. You just need to follow a few simple steps to subscribe to an IPO.
A number of companies get listed through the IPO route every year. You will get a plethora of options for investing in IPOs throughout the year. However, it is not necessary to subscribe to all the IPOs. You should set your goals and then finalize the IPO to put your money in. For example, if you wish to have listing gain, consider checking subscription numbers, GMP etc of the IPO. IPOs with higher GMP and oversubscription have a good chance of providing good listing gains. On the other hand, if you have a long term goal, go through the fundamentals of the company.
Every company that gets listed through an IPO shares a prospectus with the public that shows the company's goals, plans with the capital raised from the IPO's subscription, etc. Go through that prospectus thoroughly and make an informed decision before applying for the IPO.
Subscribing to a company’s IPO is similar to buying a stock. Hence, you are required to have all the necessary accounts that are needed to invest in the shares. IPOs are opened in the primary market but to trade them like any other stock in the secondary market, you need to have the following accounts:
You can make payment for an IPO through your bank account. When you make a payment, the required amount gets blocked from your account. It will show in your available balance but cannot be used. Once the IPO allotment status is finalized, the funds will be deducted from your bank account and you will be assigned the shares. If you do not receive any share, the funds will get unblocked and will be available for use.
INDmoney offers one of the simplest IPO application processes for Indian IPOs, it just takes 3 steps to place an IPO bid.