It's the season of IPO's. There have been some blockbuster IPO's this year. Look at Avenue Supermarts Ltd. Avenue Supermarts launched its IPO in March 2017. The issue price of Avenue Supermarts was INR 299. Avenue Supermarts Ltd. listed at INR 604. If you had subscribed to this IPO and were lucky to get the allotment (You would have got 50 shares as the minimum lot size is 50), then your investment would have doubled. Your profits would be called listing gains.
If you are jumping with joy, wait till you hear this. Today, the price of each share of Avenue Supermarts is INR 1250. You would have invested close to INR 15,000 in March 2017. Just 6 months later, this investment would be worth INR 62,500. Interested in IPO's?
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Before learning how to make money from IPO's, you have to first learn, What is an IPO? A Company needs money to grow its business and expand. One of the ways it can raise money is by issuing shares. When a Company offers its shares to the general public for the first time, it's called an IPO or Initial Public Offer. Issue price is the price at which shares are offered to retail investors (Investors like you and me), in an IPO.
You have to apply for an IPO through ASBA (Application Supported By Blocked Amounts). When you apply for an IPO via ASBA, the application amount in your bank account gets blocked. This amount remains blocked (a lien is put on it), until the share allotment is done. The money is debited from your bank account only if your application is selected for allotment. If your application is not selected, the lien (Claim on your money) is lifted and you can use the money in your bank account.
1. Apply for IPO's of reputed profit making Companies
You must apply for the IPO's of reputed profit making Companies. Apply for mega issues of these Companies. The sheer size of these issues mean you have a better chance of getting an allotment.
An IPO is a break-or-make moment for a Company and its success or failure could have serious long-term consequences. So, a firm hires underwriters who are investment bankers also called IPO specialists.
1. The investment banker makes sure the Company follows all regulatory requirements such as filing with appropriate bodies, depositing all fees and also making mandatory data available to the public.
2. The investment banker contacts large prospective buyers like mutual funds and insurers who have a lot of money to invest.
3. The IPO feels the pulse of prospective buyers and then recommends a price to the Company. This is the price at which the shares would be sold. If the firm prices the IPO too high, there would be less subscribers. If the firm prices the IPO too low, it could lose revenue. So, the investment banks must get the pricing right.
For you an investor, larger the group of investment banks participating in the issue, more likely the IPO will trade up after the issue.
You can subscribe to the IPO using your demat account. You can open multiple demat accounts in India, but there's a problem, You can apply for an IPO only from one demat account. This is matching of the Name, PAN Number and demat account/Client ID/DP ID.
So what's the solution? You can ask your spouse, brother or eligible family members who have PAN to open demat accounts. You can then apply in the names of family members from your bank account through ASBA. Each bank has a limit on number of IPO applications, you can apply using a single savings bank account. While in most cases its 5 applications per saving account, it is recommended you check with your bank.
In the case of an IPO getting oversubscribed, the chances of you getting share allotment rise if multiple bids are made by different members of the same family.
A lot of IPO's have given bumper returns this year. Just take a look at the IPO's which have given you more than 100% returns. If you had invested in the IPO's of Shankara Building Products Ltd, Central Depository Services (India) Ltd, Salasar Techno Engineering, Avenue Supermarts or Apex Frozen Foods Ltd, you would have got more than double returns. Keen to jump on the IPO Bandwagon? Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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