IPOs provide investors early access to companies on their way to go public. However, buying an IPO is not as simple as buying stocks on the stock exchange. An investor is supposed to bid for a company’s IPO, and the company will allot the shares based on several factors. Yet, if you follow the best practices while investing in an IPO, your chances of getting allotted for the company’s shares may increase.
Before jumping into the best practices to follow while investing in an IPO to increase your chances of allotment, let’s quickly look at the basics of an IPO.
What Is an IPO?
The process by which a private or government-owned company raises funds for various corporate uses by offering shares to the public is called an Initial Public Offering (IPO). Before going public, a company has a few shareholders like founders, promoters, and venture capitalists. As a company goes public, retail investors can easily bid for the shares of the company.
Once you bid for a number of shares, you will be provided with IPO allotment status. An IPO allotment status gives you details about the number of shares applied and allocated to the investors. For any new IPO, the allotment status is available online within a week of the IPO issue closing date.
If you are allotted shares in the IPO, you will be one of the early investors. On the other hand, if you are not allotted shares, the company will refund your bid amount to your bank account.
Role of Primary and Secondary Markets in an IPO
The primary market allows companies to raise capital from investors through IPO, while the secondary market allows investors to buy and sell shares of listed companies. So when a company that issues an IPO is listed on stock exchanges, its shares are available for trade in the secondary market. Both markets play an important role in the financial system, giving companies a chance to raise capital for productive uses and providing liquidity for existing investors.
10 Best Practices While Investing in an IPO
IPOs can be a great way of investing in a company but can be risky at the same time. Here are some best practices you can follow when considering applying for an IPO.
- Before investing in any IPO, it’s important to research and understand the company. Read the prospectus, a legal document providing information about the company and its financials. You should also research the company’s management team and industry.
- IPOs are inherently risky investments, so investing based on your risk tolerance is important. Don’t put all of your eggs in one basket.
- Ensure your UPI ID is linked to your bank account. Also, make sure the account has enough funds to invest in the IPO.
- Do not apply for an IPO via different broking apps with the same Demat account.
- Approve the mandate request sent to your UPI application to successfully apply for the IPO.
- Ensure you bid for an IPO early to avoid any last-minute hassle. There can be chances where users don’t receive a mandate for the IPO application. If you don’t receive the mandate within 6 hours, you should cancel the existing application and apply for a new one again.
- Always bid at a cut-off price to increase the chances of allotment. In case of oversubscription, the users with a higher bidding price will have higher chances for IPO allotment.
- If multiple categories are opened by the company, like SHA, POL, IND, and EMP, then you should apply once in each category.
- Consider purchasing parent company shares. If you have at least one share of the parent company in your holdings, you can apply in the SHA category, increasing the chances of allotment.
- Applying for IPOs with the same PAN card via different brokers would result in application rejection by the exchange.
When you apply via the Angel One app, you can check your IPO application status by following these steps: Open Angel One ➡️ Go to IPO ➡️ Click on ‘IPO orders’ ➡️ Select the application.
Note that IPO investments can be volatile, so it’s important to be patient. Don’t expect to get rich quickly. Give the investment time to grow.
Remember, with the IPO being made available to the public for the first time, many investors try their luck to get an allotment. Therefore, it is a game of chance. However, following the above-mentioned best practices can increase your chances of allotment when investing in an IPO.
Besides, it is important to do your research and make sure that you understand the risks involved with an IPO investment before starting out.
To invest in an IPO, you need a Demat account; open a Demat account now for free on Angel One. To get the list of upcoming IPOs, check the IPO section on the Angel One app.
Disclaimer: Angel One Ltd is just acting as the distributor of IPO. Angel One Ltd does not underwrite the IPO or provide investment advice.
Are IPOs guaranteed to be profitable?
No, IPOs are not guaranteed to be profitable. The success of an investment in an IPO depends on various factors, including the company’s performance and market conditions.
Can I apply for an IPO in India if I am not a resident of the country?
NRIs are eligible to invest in IPOs in India. However, the investor must hold an active NRE/NRO account.
Is there any eligibility to bid for an IPO?
There are no eligibility criteria to bid for an IPO. However, you need to have a Demat account, PAN card, and must complete the KYC process with your stockbroker. Also, note that IPOs may have a minimum investment requirement. Ensure there are enough funds in your bank account before placing a bid.
What happens if my bid is successful in an IPO?
If your IPO bid is successful, you will be allocated the shares you applied for at the IPO price. These shares will be credited to your Demat account, and you become a shareholder in the company, eligible for dividends and potential capital gains when you sell them in the secondary market. However, there can be a lock-in period during which insiders and early investors are restricted from selling their shares until a specific period.