How to bid for an IPO?

Deepika Chelani
Updated: 13 Dec 2021, 05:43 PM IST
TL;DR.

Bidding for an initial public offering (IPO) happens before the securities are alloted. We explain the process in detail here

The digital application process of investing in IPOs is now hassle-free for the investors. It also provides an interface to change, cancel or resend the bidding application within the IPO window.

The digital application process of investing in IPOs is now hassle-free for the investors. It also provides an interface to change, cancel or resend the bidding application within the IPO window.

Before bidding for an IPO it is important to know that all the IPOs are not the same. IPOs are classified into retail, high net worth individual (HNI), and institutional categories. It is the retail category that is open to the general investing public. An investment of up to Rs. 2 lakh is classified as retail.

Secondly, it is imperative to know the difference between fixed price IPO and book building IPO. In a book-built IPO, the company provides a price range and the bid falls in this range. The issue price is decided after the bids are received. 

The bidders who quoted a price equal or higher to the issue price released by the company are eligible to the allotment of the shares. For the fixed price issue, the company sets a fixed price in advance and the investors can apply only at the given fixed price.

The stepping stone

Any investor who is interested in bidding must keep the research work ready with her/himself. Alternatively, sound advice from the broking firm in case of any doubts and confusion should also be considered. It is advised that an individual consults only authorised and reliable sources, beware of fake entities.

Make sure you have a designated bank account, a Demat cum trading account along with a depository participant, your PAN card, address proof, the ASBA form and other documents mentioned by the DP should be easily reachable.

Bidding Process

Each IPO puts out a ‘lot size’ that an investor needs to adhere to in order to subscribe to the IPO. The lot size mentions the minimum number of shares that must be purchased. Make sure you furnish the details in accordance to the lot size prescribed by the IPO. Additionally, ensure that your account has sufficient funds to support the purchase.

The next step is to choose your platform for bidding - either online or offline. An online IPO application is much easier and hassle-free. You can apply for the IPO listed at a stock exchange through the mobile application or the website. For the offline mode, you are required to carry all your documents to the local officer of the broking firm and then apply to the IPO of your choice.

The question that troubles a lot of people is, ‘at what price shall I bid?’

A potential investor can buy or sell at the cut off price. However, it must be noted that only retail investors are allowed to bid at the cut-off price. The possibilities of getting the allotment decreases manifold if the bid-price is lower than the cut-off price

It is advisable to bid at the cut-off price but the cut-off price is not determined while bidding, the bid should be submitted at the cap amount. You do not have to worry if the issue price comes out to be lower than the amount you bid, the variance in price is reimbursed after the allotment of the shares take place.

Bidding online is simple and easy, all the trading sites and the broking have an IPO page which enables investors to buy shares online. You only have to enter the number of shares you wish to bid for along with the price of the bid. Remember that you can make a maximum of 3 bids. Once your application is confirmed, you will receive the IPO application number and a receipt of the transaction details which will come handy during allotments.

The final wait comes to an end on the day of allotment of shares. Getting your shares depends on a lot of factors, there might be a possibility that you will get lesser shares than what you bid for. This is because the demand for the shares is generally higher than the actual number of shares.

If you receive lesser or no shares, the bank will release your blocked bid amount either in parts or all of it at once. In case you receive full allotment then you will be issued a Confirmatory Allotment Note (CAN) within six working days of the closing date of the IPO. After the allotment of the shares, they are directly credited to your demat account. From here, you may trade them when they get listed on the stock exchange.

End note

It is very important to be well versed with the process of bidding an IPO as it ensures the investor remains protected from any kind of fraud or loss of money. In case of queries one should always approach the DP or the broking firm for clarification.

First Published: 13 Dec 2021, 05:43 PM IST
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