The BuyT Desk
You may have come across the term that a particular company has brought their IPO or is in the process of announcing an IPO? A company decides to bring in an IPO when they look for additional working capital. So what good is it for a retail investor like you and me? IPO lets you purchase a small portion of the company by owning its stock. This is what an IPO is all about.
What happens in an IPO?
Initial Public Offering (IPO) is when a company raises money by selling its stocks to the general public. This way, a privately held company becomes a public company. It could be a new young company entering the stock market for raising funds, or even an old company can bring an IPO. The company which offers its stocks are known as the issuer. Once the company provides its stocks, the company is then listed on the stock exchange, and the stocks are traded in the open market. Investors can further sell these stocks in the secondary market.
When do the company bring an IPO?
There could be a requirement of working capital for running the business. The company could be planning an expansion and would require more capital for machinery and operations. What an IPO does is infuses new money into the firm to facilitate growth.
Eligibility Criteria for investors
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He /she must have a PAN card
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A Demat account
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And a trading account if the investor wants to sell the stock once the company is listed
What should you look out for?
Draft Red Herring Prospectus(DRHP)
Every company that decides to be listed will have DRHP documents. Before investing in IPO you must go through the DRHP papers to understand its financial status. The DRHP will answer a few basics about the company such as –
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Why is the company raising funds?
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Is there any debt on the company ?
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What are their expenses ?
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Last three years earning statement (if applicable)
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Net proceeds of the company
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Commission and discounts of the underwriter
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All the details such as the name and address of all the underwriters, officers, directors, and stockholders possess 10% or more than the currently outstanding stock.
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Legal opinion on the listings
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Copy of the underwriting document
How can you apply for an IPO?
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Log in through your Demat account or apply through net banking
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Go into the investment section and select the IPO
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You will put in the quantity that you need to apply for and your bid price.
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Payment will be made through net banking or e-wallets
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After successful application, your bid is placed either with NSE or BSE as per your broker integration.
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You will receive app notification as well as an SMS from BHIM app for the authorisation. This notification may take up to 24 hours after bid submission
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SEBI has now made available a facility called the Application Supported by Blocked Amount or ASBA. Under this facility, the bid amount only gets blocked and not deducted from your bank account. The money remains in your savings account and keeps on earning interest. The money gets deducted from your account only after shares are allotted.
