The stock market is a breeding ground for those looking to make their money work for them. It’s a solid investment avenue for those who are looking to move beyond FDs and savings accounts that would offer them bare minimum returns, and for many, it’s their sole source of income.
The way every stock functions from its inception is relatively similar. When a stock is listed on the stock market, investors can purchase the stock, and then buy and sell it between themselves. This common trading on the stock market all takes place under the guise of the secondary market, wherein shares of a company are being bought and sold by individual traders among themselves, with the company itself having no part in this transaction (though it benefits from it indirectly). The stock market, however, is a collection of complex strategies, theories, technicals, fundamentals, and a dash of experience and risk-taking ability, all of which amalgamate into one basic principle: Buy low, sell high. Now, in a venture to generate maximum returns, you might ask the question ‘well, what’s the absolute bottom line, the lowest I can get in at?’. This is where IPOs, how to invest in IPO, how to apply for IPOs and how to buy ipo stock comes in. In this article, let’s take a look at how to invest in an IPO, how to buy an ipo, how to apply for an IPO, and good ways to purchase an IPO allotment.
How do IPOs work?
In order to understand good ways to invest in an IPO, we must first understand how an IPO works before we can figure out how to buy IPO offerings from one that is upcoming. In the stock market, the price of a stock is determined based on the functions of the underlying company, combined with various other factors such as public perception, the performance of the larger industry and most importantly, demand. This lattermost point is what results in stocks often trading at 10, 20 times their book value. An IPO however, does not have demand to validate the price of the stock, meaning other solutions have to be found. Here is where an underwriter comes in. An underwriter carries out the due diligence for the company’s IPO, and employs their most educated guess to set the price of the IPO.
The catch here is that the first question you have to ask before asking you to invest in IPOs or how to apply for an IPO, is if you can purchase an IPO at all. Unlike the secondary markets, IPOs are first offered to larger investors such as hedge funds, banks etc, who are mandated to hold their investment for a certain amount of time. In this case, while you might apply for a certain amount of shares while trying to figure out how to apply for an IPO, it is not guaranteed that you will get the shares that you have applied for. Instead, based on the historical experience of investors, it is most likely that you will get less than you had applied for, if you get them at all. That being said, the best you can do is try your best. In this spirit, let’s take a look at how you can apply for IPOs, and good ways to do so.
How to apply for an IPO
With the onset of the technological revolution that touches the stock market as well, there exist more than one way that one can employ while trying to understand how to buy IPO stock. Let’s take a look at both options, and see which one is more beneficial for you.
1. Applying for IPOs through ASBA
Application Supported by Blocked Accounts, or ASBA stands to be the most commonly used method by those looking into how to buy IPOs. ASBA, as the name suggests, allows account owners to apply for an IPO allotment, and the amount synchronous with the number of shares you have applied for will be blocked in your account. Meaning, you can view the amount in your account, but cannot employ it. Once the allotment takes place, if you receive the shares you applied for, or part shares you applied for in your process of understanding how to buy IPO stock, then the balance amount, if any, will be redeemed for your use once again.
To understand how to invest in IPOs through ASBA:
A precursor to this process (and a problem that the modern age UPI tries to alleviate) is that your bank has to support IPO allotment and ASBA facilities. If this is the case, you can proceed to the step-by-step guide given below.
- Visit the website of your bank account of choice that you are going to employ while figuring out how to apply for IPOs.
- Enter the requested credentials such as your customer ID and password.
- Proceed to click login.
- Navigate to the IPO/Rights issue section of your account. This will bring up a lost of the available IPOs at the time.
- Identify/locate the IPO you want to apply for, and click “Apply”.
- Provide further information necessary for verification, and proceed to complete your bid.
How to invest in IPOs through UPI ID
Another beneficial result of the process of understanding how to buy IPOs is UPI. UPI is based on the IMPS infrastructure and enables instantaneous transactions between two accounts. Once again, the precursor here is that it is required for your bank to have UPI services enabled on your account for you to further your quest of looking into how to apply for IPOs. If you use services such as Paytm, Google pay etc, however, it is most likely that you already have a UPI ID-enabled bank account.
- With the use of your credentials, log in to the trading account you are going to use while studying how to buy IPO stock.
- Enter your bid amount (the amount you wish to pay for each individual share, and the amount of shares you wish to purchase.
- Provide your UPI ID and other necessary details to complete the application process.
How to buy IPOs is a question a lot of investors ponder. In this article, we have attempted to equip you better with information on your quest of understanding how to invest in IPOs and how to buy IPO stock. However, despite the non-linear allocation procedure, you needn’t be disheartened if your application does not yield any shares. If you have done your due diligence and believe in the company, then you can look to purchase the stock of that company once it hits the secondary markets as well, as it is more than likely that the shares will appreciate significantly going forward as more and more people look to jump onto the stock.