How to Invest in Initial Public Offering (IPO)?

If you have started your journey in stock trading then you must have come across the term “IPO” a lot. Investing in an Initial Public Offering (IPO) can be a way for investors to enter the market when a company first offers its shares to the public. IPOs allow you to buy shares at an early stage, potentially benefiting from future growth.
The process of applying for and investing in IPOs can seem a little complicated for those who are new to the world of stock markets. In this article, we will guide you through the process of investing in IPOs, from understanding what they are to explaining the step-by-step procedure for applying for one. Furthermore, we’ll discuss the necessary accounts you need, both online and offline options, and help you determine if investing in IPOs is the suitable choice for you.

Table of contents

1. Understanding IPO
2. Benefits of investing in IPOs
3. Risks and how to avoid common mistakes in investing
4. Requirements to apply for an IPO
5. Steps to apply for IPO online - Through internet banking/UPI
6. Steps to apply for IPO online - through broker
7. Accounts required to apply for IPO online
8. Steps to apply for IPO using offline method
9. Reasons to invest in IPOs
10. How do you invest in IPO shares?
11. Eligibility criteria for IPO application
12. Advantages of online IPO application

Understanding IPO

An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time. By doing so, the company raises capital to fund its expansion, pay off debts or for other business needs. IPOs are typically seen as a milestone for a company, as it transitions from being privately held to a publicly traded company.

When an IPO occurs, the company’s shares are listed on a stock exchange (like the NSE or BSE in India) and investors can buy and sell those shares in the open market. The price of the shares is determined by the market demand and supply after the IPO is launched.

Read Also: What is the Process of Selling IPO Shares

Potential benefits of investing in IPOs

IPOs may be suitable for individuals looking to participate in a company’s early market journey, but they also involve considerable market risk because the price may fluctuate once trading begins. Since IPO outcomes depend on demand, business fundamentals, and market conditions, investors may benefit from evaluating these elements carefully.

Some of the potential benefits are:

• IPOs may offer potential long-term growth opportunities, depending on business performance.
• They allow diversification into new sectors or emerging businesses.
• Transparency through regulatory disclosures may support informed evaluation.

Risks and how to avoid common mistakes in investing

Investing in financial markets, including IPOs, involves exposure to multiple risks, such as market volatility, liquidity challenges, and changes in economic conditions. Equity-oriented products carry high risk due to price fluctuations, while debt-oriented products face interest rate and credit risks, among others.

Common mistakes may arise from inadequate research, reacting emotionally to short-term movements, concentrating investments in a single product, or investing without a clear financial objective. Overlooking costs, taxation, and liquidity requirements may further affect the investing experience.

Ways to avoid such mistakes include:

• Defining clear objectives and selecting products that may be suitable for those goals.
• Maintaining diversification across asset classes to reduce concentration risk.
• Reviewing documentation such as scheme information, riskometer, and statutory disclosures before investing.
• Aligning investments with personal time horizons and risk appetite.
• Periodically reviewing the portfolio and making adjustments based on updated needs.

Requirements to apply for an IPO

• Demat account: A demat account is where your IPO shares will be stored once you purchase them.
• Trading account: This account is used to buy and sell shares in the stock market.
• Bank account: You'll need an active bank account for payment during the IPO application.
• PAN card: A PAN (Permanent Account Number) card is mandatory for IPO applications.
• Address proof: Documents like Aadhaar, Voter ID or Passport can be used as address proof.

Steps to apply for IPO online - Through internet banking/UPI

• Log into your Internet banking account
• Search for IPOs
• Fill in IPO application form
• Make payment
• Receive a confirmation

Steps to apply for IPO online - through broker

• Log into your broker’s trading platform
• Find the IPO section
• Select the IPO
• Review and confirm
• Payment process:

Accounts required to apply for IPO online

• Demat Account: This holds your IPO shares in electronic form.
• Trading Account: For executing the purchase and sale of shares.
• Bank Account: For making payments for IPO shares.
• UPI ID: If you want to apply using UPI, having a UPI ID linked to your bank account is necessary.

Steps to apply for IPO using offline method

While online methods are widely preferred for applying to an IPO, offline is still an option. The offline method requires you to physically fill out an application form, which can be obtained from the IPO issuer or a registered broker.
Once you fill out the application form, you submit it along with a cheque or demand draft for the required payment. This process is slower and more cumbersome compared to online methods but is an option for those who are not comfortable with digital platforms.

Reasons to invest in IPOs

High potential returns

IPOs, especially those from successful companies, may yield potential returns. As an early investor, you may benefit from the company's long term potential growth once it becomes publicly listed.

Diversification of investment portfolio

IPOs offer a way to diversify your investment portfolio by investing in different sectors and industries.

Opportunities for early-stage investment

IPOs give investors the opportunity to invest in a company at an early stage when prices are often lower.

Involvement in the company’s potential growth

By investing in an IPO, you become a shareholder and can benefit from the potential growth of the company.

How do you invest in IPO shares?

Decide on the IPO

Before applying, research the IPO thoroughly, including the company’s background, financial performance and future prospects.

Choose the number of shares

After deciding on the IPO, you must decide how many shares you want to apply for and the amount you are willing to bid.

Place your application

Submit your application through any of the methods discussed—online through internet banking or a broker or offline if you prefer.

Wait for allotment

After applying, you will need to wait for the company to allot shares. If your application is successful, the allotted shares will be credited to your demat account.

Sell or hold shares

Once you receive your shares, you can choose to sell them in the open market or hold them if you believe the company’s value will rise over time.

Eligibility criteria for IPO application

• Indian residents: IPO applications are generally open to Indian residents, including individuals, Hindu Undivided Families (HUFs), and companies.
• Age requirement: Applicants must be at least 18 years of age.
• KYC compliance: Applicants must meet the KYC (Know Your Customer) requirements. This typically involves providing proof of identity, address, and PAN card.

Advantages of online IPO application

There are several advantages to applying for IPOs online:

Convenience: Applying for an IPO online is much more convenient than applying offline. You can do it from the comfort of your home.

Faster processing: Online applications are processed faster, reducing delays in allotment and payments.

Paperless: The online process is paperless, making it more eco-friendly.

Real-time updates: You can track your IPO application status in real-time and get instant updates.

Conclusion

Investing in an IPO can be an interesting opportunity, especially if you’re able to identify the right companies with strong growth potential. While the process may seem intimidating, the steps are fairly straightforward once you have the necessary accounts and documents in place. Whether you apply online through your bank or broker or prefer the offline route, make sure to do thorough research on the company and the IPO before making your decision.

Read Also: What is the difference between NFO and IPO?

FAQs:

How to apply for an IPO online?

You can apply for an IPO online through your bank’s internet banking portal or through a stockbroker’s trading platform by filling out the IPO application form and making the payment via UPI or bank transfer.

How to buy IPO stocks online?

Buying IPO stocks online involves logging into your trading account or Internet banking, selecting the IPO you wish to invest in, entering the number of shares, and confirming the payment.

Is IPO money refundable?

If you don't receive the IPO allotment, your application money will be refunded to your bank account. However, once you’re allotted shares, the money is non-refundable.

How to invest in IPO for beginners?

Beginners should first open a demat and trading account with a broker, research upcoming IPOs, and apply for shares through online platforms.

Is buying an IPO a good idea?

IPO investments can offer relatively significant returns, but they also carry risks. It’s essential to research the company and its potential growth before investing.

How to invest in the stock market for beginners?

Beginners may start by opening a Demat and trading account with a SEBI-registered broker, understanding basic concepts, and investing gradually. It may be useful to research companies, diversify, and assess personal risk tolerance. Listed securities carry market risk, so beginners may focus on learning, reviewing disclosures, and making informed, long-term decisions.

What is the difference between the stock market and IPO?

The stock market is a platform where listed shares trade among investors, while an IPO is a company's first public issue of shares. After an IPO is completed and the shares are listed, they trade on the stock exchanges.

How to invest in direct mutual funds online?

You may invest in direct mutual funds through AMC websites or SEBI-registered online platforms. The process involves KYC completion, creating an account, selecting suitable schemes, and choosing SIP or lump sum mode. Direct plans exclude distributor commissions.

How to apply for an IPO online in India?

Investors may apply for an IPO online through ASBA via net banking or UPI-based applications on broker platforms. They must review the prospectus, select the number of lots, and confirm the payment block request. Allotment depends on regulatory processes, and IPOs carry market and listing-related risks.

How to bid for IPO shares?

Bidding involves selecting the lot size, choosing the price within the IPO’s price band or opting for the cut-off, and confirming payment through ASBA or UPI. The exchange system records bids, and final allotment follows regulatory norms.

How to invest in pre-IPO companies?

Investing in pre-IPO companies usually occurs through private placements, venture capital platforms, or authorised intermediaries.

What documents are required to invest in IPOs?

Investors need a PAN, an active Demat account, and a linked bank account enabled for ASBA or UPI. KYC completion is mandatory, including identity and address proof.

Related Searches:

Initial Public Offering	NFO Full Form	How To Apply For Ipo
What Is Primary Market