IPO refers to as Initial Public Offering where the private companies open their shares in the stock market for the very first time. The company follows this practice to generate capital, which will result in expansion and growth of the company. The investors can buy and trade on the stock market by opening a Demat account.
There are few simple steps are involved in buying IPO, let’s have a quick glance on it:
Research is the most important feature to do for any investor before buying IPOs of any company. Thorough knowledge needs to be gained about the company by reading its prospects available on Securities and Exchange Board of India’a (SEBI) website, where the user can learn about the company’s future plans, endeavours, key strengths and performance till date.
Funding is the essential part in the whole process of buying IPOs. It is always advisable to not use your savings, as the stock market is very prone to uncertainty and risk. The safer option is to use up funds set aside for investment purposes, also some nationalised banks offer loans to invest in IPOs. These are also some options to be considered before investing in IPOs.
The next key step is to open a Demat cum Trading account, it can easily be opened with any registered SEBI broker or discount brokers. One thing to note here is that the facility to invest in IPOs is not offered by discount brokerage firms.
To invest in IPOs, the investor needs to understand ASBA (Application Supported by Blocked Account), an application which helps to block the amount at the time of placing bids.
To invest in IPOs, the investor needs to decide the lot size of the stock, find details of the IPOs and block funds for the investment - which will help while allocation. ASBA also helps invest without the procedure of using demand drafts, and with the use of Demat account, bank account number and PAN number, any investor can apply online.
After the setup of the trading account, the next step is Bidding. The investors need to bid on the minimum number of stocks mentioned in the prospectus of the company. Once the investors decide the lot size of the stock to bid on, the amount gets blocked until the allotment period.
Once the bidding has been done, the investors need to wait till the allotment. Sometimes, the investors do get lower than they have bid or in worst case scenario none. The reason behind this can be massive demand in the market. When such instances occur, the bank unblocks the balance amount which can be transferred later. When the whole allotment of the stocks take place, then a Confirmatory Allotment Note (CAN) within 6 business days.
IPOs are a good source of investment as they are an early bird opportunity and offer good quality stocks which result in good return over a small period of time. Even though IPOs are a good option, it requires a good amount of research and proper vetting by the investors.