How to enhance the chances of getting an IPO Share. Here are 6 simple guidelines
Investors who want to participate in initial public offerings (IPOs) but are unsuccessful often have these queries after being denied access to any shares. Share allotment in recent IPOs has dissatisfied investors of all experience levels.
Recent public offerings have been extremely well received, making it challenging for investors to get allotments. We get a lot of questions concerning the IPO allotment procedure, so we’ve compiled this guide to answer them. This should help to clarify the procedure and improve applicants’ odds of being selected for the initial public offering.
Before we can take measures to improve our chances of being allotted shares in an initial public offering (IPO), we need a thorough understanding of how IPOs are allocated. In spite of the fact that following these guidelines is no guarantee of obtaining an IPO allotment, it will increase your chances significantly.
Improving the Odds of Getting an IPO Allotment.
Learn the ropes before you jump in If there was an oversubscription for shares in the retail category, registrars were required by market regulator SEBI to allocate them proportionally prior to October 2012. This meant that a bidder who put down INR100,000 or INR150,000 had a better chance of receiving shares than a bidder who put down just INR15,000. Formerly, this method functioned properly in initial public offerings (IPOs) where demand was exactly proportional to, or lower than, the number of shares being offered.
When demand outpaced supply, the method inevitably aided large applications. It has been found that many high-net-worth individuals (HNIs) put their money in the retail category in order to corner shares. Of course, it didn’t sit well with SEBI.
Therefore, SEBI introduced a new IPO allotment method in October 2012 that mandated treating all retail individual investor (RII) applications the same. Shares are distributed to applicants in accordance with the new approach, with the minimum application size guaranteed. Once again, full allotment will be granted to all retail investors if demand is lower than supply.
If there is more interest than supply, we shall divide the total number of equity shares available for assignment to the category by the minimum bid lot to determine how many investors will be allocated shares. Any allocation made under the current rules must be smaller than the smallest unit available for bidding.
Improve your odds of getting an initial public offering allocation with these 6 pointers
Now that we understand the reasoning behind allotment, we can examine ways to improve the odds of getting shares in an initial public offering. Given the high demand for IPO shares, it’s clear that investors have few options. However, there are strategies that can help you dodge the hazards and get the most out of your allotment. A better probability of getting an IPO share might be yours by following these easy steps.
Here are the six most important things you can do to improve your odds of getting an IPO allotment. While there is no way to guarantee an IPO allotment, taking these precautions will greatly increase the likelihood that you won’t be disqualified for insignificant reasons.
1. Avoid Large Application Forms
All retail applications (those for less than INR200,000) are treated similarly in the present allotment process run by SEBI. This indicates that submitting a large application, say 100,000 INR, would not be beneficial in the event of oversubscription. Only in huge IPOs when it is reasonably certain that the retail segment would remain undersubscribed do applications of that size make any sense.
Every individual retail investor had a shot at allocation in the recent INR11,372.64 crore Initial Public Offering (IPO) of General Insurance Corporation (GIC). A good example, even if the causes for this under subscription were unique.
2. Open a Number of Demat Accounts
Since it is inefficient to submit numerous large applications, the same money can be used to submit many applications from separate demat accounts. If you apply for six individual lots, rather than all six at once, your chances of being selected for an allotment rise by a factor of six. These demat accounts will need to be associated with individual PAN numbers. It is not possible to submit multiple applications in the same name.
How to increase your chances of getting an IPO allotment: get your friends and family to register demat accounts and apply for upcoming IPOs. These days, opening a demat account is simple, and many brokers offer free account opening services for novice investors. In addition, e-KYC just takes a few minutes to complete.
3. Always Offer the Minimum Acceptable Bid.
This is a challenging step because investors frequently mix up price bids with cut-off bids. By picking a specific price, the investor indicates to the registrar a desire to purchase shares at that price, while cut-off indicates a willingness to purchase at any price within the specified range. The price at which demand is at its highest is calculated here.
Given a range of INR100-105 per share, for instance, all bids below INR105 per share will be disregarded for purposes of allotment. Therefore, retail investors might improve their chances of getting an IPO allotment by placing bids near the cut-off or maximum price.
4. Never Wait Until the Last Minute
Before submitting their bids on the final day, many investors look at the number of subscriptions in the HNI and QIB categories. This strategy for gauging the reaction of these knowledgeable groups to an initial public offering (IPO) may seem brilliant on paper, but it could backfire spectacularly if your bank experiences a temporary outage in its online banking services. There’s always the risk that you won’t have enough time or money to set up a demat account at the last minute.
While completing paper forms is always an option, this is hardly a practical answer when time is of the essence. It may be too late to submit the form even if it is completed. Multiple financial institutions no longer accept applications after the deadline day’s 4 p.m.
5. Don’t Get Stuck With a Technical Rejection.
The investor may be unaware of the technical flaws that led to the rejection of their IPO application. Since January 1, 2016, all IPO applications must be submitted via the Application Supported by Blocked Amount (ASBA) process, and most investors submit their applications via netbanking, which reduces the likelihood of typos, name mismatches, and incorrect cheque details. In spite of this, applications are nevertheless occasionally refused for technical reasons; even minor discrepancies between a person’s name on their bank account and their PAN might be fatal.
6.Invest in the Parent Organization.
Here’s another one, and it’s a great one, for boosting your initial public offering allotment prospects if it applies to you. An investor can apply as a shareholder if they have at least one share of the parent or holding firm in their Demat account. Note that the investor’s Demat account must already contain shares of the parent firm as of the date of the Red Herring Prospectus.
Learn more about employee and shareholder reservations in initial public offerings by reading
Note that this only holds true if the parent company of the IPO-bound company is already listed and there is a reservation for shareholders in the parent company. The retail category of Ujjivan Bank’s recently ended IPO was 48 times subscribed, whereas the shareholder category was only subscribed four times. Obviously, the odds of allocation improve dramatically for shareholders. To top it all off, bids can be placed in either or both of these groups!