If you’re new to the stock market, bidding on an IPO (Initial Public Offering) may seem intimidating. But do not worry! With a little direction, you’ll be ready to make your first move in no time. In this article, we’ll go over the fundamentals of IPOs, the bidding procedure, and more information to help you get started comfortably. Let’s get in!
What is an IPO?
An initial public offering (IPO) occurs when a firm offers its shares to the public for the first time in order to raise funds. It’s your chance to own a piece of a company making its first significant move into the public market.
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Types of IPOs: Are They All the Same?
IPOs are not same for one and another actually they are different from each other. There are two main types you’ll see:
Book-Built IPO
In this type the company offers a price range in its shares known as the floor price, which is the lowest price and the cap price which is the highest possible price. You can bid within this range and the cutoff price based on all bids cast will be agreed on.
Fixed-Price IPO
Given the nature of its name, the company will have a fixed price to its shares for bidding. It is very easy for investors and the only way they can apply is at this predetermined price.
Getting Started: What you need to bid in an IPO
Before you can place a bid, you’ll need to have a few things ready:
Demat Account
This is where your shares will be held once they have been issued out to you through the processes of allotting. If you do not have one, you can open it with any approved Depository Participant, say a bank or brokerage company.
Bank Account
IPO applications in India cannot be done directly through cheques, instead, one has to use the ASBA (Application Supported by Blocked Amount). This means that the money for bid is retained in your account while your bid amount is held for allotment of shares. In the individual accounts, only the final amount for the shares bought over the given amount is debited.
PAN Card and KYC Documents are required to open the Demat account as well as for applying for an IPO.
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How to Bid in an IPO: Step-by-Step
1. Decide How Much to Bid
They are many lots that refers to the minimum quantity of shares you can offer. For instance, if the lot size is 100 shares you can only bid for one lot or more than one lot comprising of 100 shares.
The retail investors can bid up to ₹2 lakhs.
If your bid crosses ₹2 lakhs, then the bid is for Non Institutional Investor (NII) category.
2. Choose Where to Bid
You can apply for an IPO through online or offline:
Online: Almost all the brokers, that operate trading platforms also have an IPO section. You just have to make a login, choose the IPO you need to apply for, and mention the details.
Offline: Complete the IPO application form you get form the physical counter and then give it to your favoured bank or a brokerage firm.
3. Select the Price to Bid
When bidding for an IPO, you have two options:
Bid at the Cut-Off Price: This is the simplest and the most sure shot strategy for the retail investors. By training the cut off offer, you enable the company to fix the shares at the last bidding price.
Specify Your Price: It is also possible to bid a certain price within the price offered by the sellers. The problem here is that if the final price, or cut-off price, is higher than the bid you put in, you might not get the allotment.
4. Complete the Application
- Go to the online trading account with your brokers.
- Look to the IPO section.
- See in the following fields; no of lots to bid for and bid price or cut-off price.
- Submit the application.
Once you made this, the amount for your bid will be frozen in your bank account through ASBA.
5. Wait for Allotment
Then finally when the IPO closes the allotment starts.
- If you are so lucky to be given these shares then you will be issued a Confirmatory Allotment Note (CAN) and the shares will reflect in your Demat.
- Otherwise, the blocked money within the bank account of the firm will be freed.
Conclusion
Bidding in an IPO is an exciting way to invest in a company as it goes public. You may participate in an IPO with confidence if you understand the procedure, from deciding how much to bid and setting the proper price to finishing your application and waiting for allotment.
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