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What Is An IPO? Research Team | Posted On Friday, November 30,2018, 05:49 PM

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What Is An IPO?




What Is An IPO?

IPO is a process through which an unlisted Company is listed on the stock exchange like NSE or BSE. Company shares are issued to the public for the first time through an IPO. IPOs are usually issued by younger, smaller Companies which are looking to grow and expand rapidly.

Why invest in an IPO?

  • IPOs are great for quick short-term profit.
  • Convenient to invest via demat account. (Just like stocks).
  • You get the benefit of quality unlisted shares.
  • In the secondary markets (stock markets), institutional investors enjoy an advantage over ordinary investors. They have analysts and may be privy to insider information. In an IPO, the main source of information is the prospectus. This provides a level playing field to retail investors (ordinary investors) vis-à-vis institutional investors.
  • You can invest in IPO via ASBA. (Applications Supported By Blocked Amounts). The money is debited from the bank account only on the allotment of shares.

Small investors can make quick money from IPOs. In the past, IPOs were sold only to investors who purchased huge amounts. Today, even small investors may get allotment through the lottery system.

SEBI has made sure there’s clarity and transparency in the IPO allotment process. This is good for retail investors who can get all Company details from the Prospectus like Company Track Record, Financial Status, Line of Business and so on. The rules of investment remain the same. Do your research before investing in IPOs.

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Upcoming IPOs:

Take a look at some of the upcoming IPOs and best performing IPOs of 2017. Coldex Limited, Penna Cement Industries Limited, Neogen Chemicals Limited, Polycab India Limited are upcoming IPOs in 2018.

The IPOs of Avenue Supermarts, Apex Frozen Foods Limited, Shankara Building Products Limited, Dixon Technologies (India) Limited and CDSL were among the top IPO performers of 2017.

See AlsoUpcoming IPO's of 2018

IPO Process

Underwriting: Underwriting is the process of raising money via debt or equity. The first step is appointing an investment banker. Underwriters are the middlemen between the Company and the public. Underwriting of shares is a contract between the Company and the underwriter (investment bank), where if shares are not fully subscribed by the public, underwriter takes up the balance.

Filing with SEBI: The investment bank arranges the registration statement to be filed with SEBI. The registration statement contains information on the IPO offering and Company information like management details, financial statements, how the Company plans to use the money, legal problems if any. SEBI conducts a thorough investigation to check material information disclosed. If SEBI approves the IPO offering, a date is set for IPO.

Red Herring: There is a cooling off period during which SEBI checks the material information provided by the Company. In this time, the underwriter prepares the Draft Red Herring Prospectus, DHRP. The underwriter and the Company build hype around the IPO issue. They approach big institutional investors to subscribe to the IPO. DHRP doesn’t include information on price and size of the issue.

The underwriter and the Company decide on the price of the issue. The price depends on promotional activities and current market conditions. Most IPOs are launched when markets are doing well as trends are bullish.

How to invest in IPO?

  • You have to login to Netbanking account.
  • Click on IPO application under request on left side menu.
  • Select the IPO you want to apply and mention the bids.
  • Enter depository details and place and confirm the order.

See Also: How To Invest In IPO?

Steps to invest in IPO through ASBA Online:

  • Login to the netbanking account
  • You will find the link called “IPO Application” under “Request” on the left side menu.
  • Select any one of the IPOs and mention up to 3 bids.
  • Enter depository details.
  • Place and confirm order.
  • You then have to accept “Terms and Conditions” before submitting the bid.

What is ASBA? IPO application through ASBA or Application Supported By Blocked Amount is a user-friendly way of investing in IPOs. Your funds are blocked and leave the bank account only when shares are allotted. You continue to earn interest on SB account.

Apply for IPO Online:

  • Log on to Netbanking and select “IPO Application”. The sequence of names (applicants) must be in the same sequence as Depository Account.
  • You (Netbanking User) are the first-holder by default.
  • A lien is marked on the total amount (IPO Amount invested).
  • Application money remains blocked till finalization vis-à-vis basis of allotment.
  • If you get shares on the allotment date, the bank account gets debited. If not, the lien is lifted and funds are available for use.

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