How to invest in an IPO
In this story, I will be sharing how to invest in an IPO. I know technically it is not investing in an IPO but subscribing to it. But I prefer the term investing because I consider this as an investment as I plan to keep these for the long term gains and not use for short-run like Listing Gains.
But first, if you want to know what an IPO is, then you should check out this story. 👇
Now that we are clear with what an IPO is. Let us understand the process of investing in an IPO. For reference, I will be using the recently closed IPO of Burger King. The pre-requisite of this is having a DEMAT account (Obviously!). Not all brokers will list an IPO, so you should check once with your broker before applying.
Now why I chose to invest in this specific IPO and what you should also check before making a decision is a topic for another time. A lot of people say that investing in an IPO is pretty risky as the history of the company’s finances is not present. But I think if enough research has been done from the investor’s end then this risk can be minimized multi-folds. And technically, the risk is with every other investment as well.
So, coming back to the point of how to invest in an IPO. First thing, open the IPO list of your Brokerage platform. I am sharing how that looks on Groww and Zerodha.
I keep checking this list frequently for the IPO because currently I don’t have a full-service broker and I cannot invest in all the available IPOs. Also, from now on I will be showing all the steps in Groww as I plan to keep these shares for the long term. You should note that the steps might vary from broker to broker and the application on your broker platform might not look the same.
After selecting the open IPO. I can make an application where I need to specify the number of shares I want to subscribe to. This number needs to be in multiple of the shares per lot. For example, the lot size is 250 shares, which means I can make an application in multiple of 250 shares. (250, 500, 750, 1000… etc).
The bid price is the price at which I want the shares. I can specify a price between the given range. That is between ₹59 and ₹60. The shares will be allocated from higher bids to lower bids. However, when I select to apply at the Cutoff price, I will get the best possible price per share for my application.
So, now after I click continue, I just need to enter my UPI Id and it will create a mandate to block funds from that account. Once the mandate is requested, it will change the status to requested.
Some broker platforms also send emails and messages for intimation of the IPO request.
The mandate request will be generated and sent to the UPI Id. Sometimes, it might be instant, but it can also take up to a couple of hours and the mandate needs to be authorized before 5 PM on the IPO Close date, so that offset needs to be taken into consideration while planning for when to apply.
Now, the mandate needs to be authorized by the UPI owner. That means, we need to now open our UPI app and authorize the mandate request by entering the UPI Pin. The amount will be blocked from the account. It will be withdrawn after the allotment is done and the refund process has started. Till then, it might show in your bank balance but cannot be used because it is frozen. If the requester does not withdraw funds, then the amount will be unblocked after 2–4 weeks.
After authorizing the mandate, the application status will change and we will now see details like the amount blocked on our brokerage platform.
Now, it’s just a waiting game. If we want to retract the application, it can be done before the IPO Close date. But I won’t be retracting this one so I’ll just leave it as it is. Also because my financial plan for this one is to keep it long term and not trade. But if you want to trade instead of invest, then you can start trading on these stocks after the company gets listed. That is, 14th December 2020 (Tentative) for this IPO.
So, that was how to apply for an IPO. The steps might differ from broker to broker. But the process is pretty much similar. If you want to know what an IPO is, then check out this story. 👇
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Also, if you want to open an account on Groww, you can use my referral link (https://groww.app.link/refe/aayusharyan) to sign up. Full disclosure, I will get some sort of reward for referring you to their platform.
