IPO issue means initial public Offer issue and as its name says it is the process of offering shares of any company by the promoters of any private corporation to the general public for the very first time. Any private organization needs money to meet its costs or for its expansions and the organization can arrange this fund in many ways.
One way to raise money is from the general public by offering them to be the shareholders of the company. An initial Public Offer (IPO issue) is just a way for a company to raise investments from retail and small investors to meet the operational expenses of its projects and to get a wide reach in the market by associating with the Stock Exchange.
Since any company is offering its equity share to the public for the very first time, it may be a good chance for retail investors to get a good profit out of their investments. But it is not necessary that every time you will get benefitted from IPOs so you must complete your search about the company profile before investing in any IPO issue.
Things to know before applying for an IPO issue
Once you are satisfied with the business standards of the company in which you are planning to invest through IPO mode, there are some points you must know prior to your investment:
Only One application per person:
You can only apply for one application for the same IPO issue, and actually, the application is accepted against PAN no so only one application is accepted against one PAN No. If you want to increase the chance of your allotment, you can apply for the IPO against different PAN Cards, and PAN cards can be of your friends, families, and relatives.
Can apply Online and Offline:
You can apply for an IPO issue in both Online and Offline ways. For applying online you must have a Demat account in your name with trading platforms like Groww etc.
Can not apply with current Bank Account:
You can not apply for an IPO issue with a current account and you must have a savings account to apply. Also, a sweep-in facility is generally not provided by the banks with saving accounts while applying for an IPO. You must check with your bank for all the related conditions before applying. If you have a joint account in your bank, in that the application should be submitted for the first name in the joint account with his/her corresponding details like PAN, DP, etc. You can also apply as the caretaker or guardian of a minor.
As per the Security Exchange Board of India(SEBI) Rule, only one application is allowed against one PAN number. If you are applying for more than one application with the same PAN but with a different account number or the same account no, all the applications will be rejected.
Check the subscription state of an IPO issue:
If an Initial Public Offer is oversubscribed in the retail investor’s category that means you have less chance to get allotted shares. Hence, you should apply for only one lot of shares when there are chances of IPO getting oversubscribed. IPO issue Subscription rates are made available to the public on the stock exchanges website on an almost real-time basis. Please visit the IPO section of the exchange’s website to get the detail.
What risk factors are involved in applying for an IPO issue?
There are lots of risk factors involved in applying for an IPO and some of them are:
- There is no guarantee that you will get allotted a share or not for your bid. If the share is not subscribed fully, you will get the share but the situation becomes difficult when the IPO issue gets Oversubscribes. Then, shares will be allotted on a proportionate basis and small investors have less chance of allotment.
- An amount equal to the IPO lot bid will be blocked by the banker and you cannot use that amount till you don’t get a refund if not allotted the share. It’s not always possible that an IPO issue will give a good return, and it can be listed at a discounted price. It will not only depreciate the interest but also the principal amount of investors as well.
- When I can sell my shares after allotment of IPO? : Once, you get a share allotted in an IPO, You can sell your stocks only after they get listed in the market and start trading, so you have to wait for the listing of shares. You can sell 50% of your shares if the IPO shares list or opens up with 40–50% gains on the first day of the market and you can sell 100% of your shares if the listing gain exceeds 70% at 10 am on a listing day. but not before the stocks get listed.
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Difference between Main IPO and SME IPO
Indian SMEs play an important role in the economic growth of this nation not only by helping GDP growth but also by providing employment to many people across the country. As per some data, Indian SMEs are having 35-40% of the workforce of the nation with more than 40% of total manufacturing output. Since these companies are also performing the same actions as other listed companies in the manufacturing sectors are doing, they were not having any proper financing mechanism with them. As they are government-funded hence they were left with only traditional financing mechanisms.
- In order to provide an additional funding mechanism for these SMEs, Stock Exchanges came up with a separate system so that SMEs can tap the capital market. BSE named this SME platform ‘BSE SME’ while NSE named this process as ‘EMERGE’. It opened the gate for SMEs to tap this high-potential market for funds raising. These are the differences between main IPO and SME IPO:
SL NO Characteristics Main/Regular IPO SME IPO 01 Paid Up Capital (Post-issue)
Minimum Rs 10 Cr Minimum Rs 1 Cr and Maximum Rs 25 Cr 02 No of Allottees Minimum 1000 Minimum 100 03 Underwriting of IPO Non Mandatory 100% Mandatory (15% must be from Merchant Banker) 04 QIB Subscription Minimum 50% compulsory Non-mandatory 05 Track Record Stringent norms Relaxed norms 06 Offer Document SEBI Vetting Stock Exchange Vetting 07 Application Size Rs 10000 to Rs 15000 Rs 100,000 08 Reporting Requirement Quarterly Half-yearly