Investors always dream of allocating shares in a preferred initial public offering. The allure of joining the bandwagon of your dream company in its early stages is undeniable. However, with the number of investors exceeding 150 million in India, one has to understand the dynamics of allotment of shares in an IPO before parking your money. This article will investigate how to increase your chances of an upcoming IPO allotment. So, let’s get started.
Investing in IPOs in India
Here is the list of the key points you should keep in mind to increase your chances of getting an allotment in an IPO in India.
1. Preventing Errors in Your Application
Accurately filing your application can be difficult, but making errors in your application form is a big no-no. However, you need not worry! All you have to remember is that you should never hurry through your IPO application form. Take a deep breath and carefully read all the information to be entered, such as the amount, DP name, DP account number, your name, and bank account details. Any mistakes in the application form can lead to rejection of your application. Double-checking all the entries for accurate application filling is always better.
2. Avoiding Big Applications
Retail and institutional investors can invest in an IPO in India. Additionally, per the guidelines of the Securities and Exchange Board of India, all retail investors investing within the limit of Rs.2,00,000 are treated on an equal footing.
What matters the most is submitting a sizable application amount is always advisable. Submitting a sizable amount would increase your chances of allotment even if the IPO is oversubscribed. This can be your sure-shot approach for securing preferable allotment in IPOs where the participation of institutional investors is expected to exceed retail investors’ participation considerably.
3. Multiple Submissions
It is always advisable to invest in an IPO through multiple demat accounts. This approach is better than placing the maximum bid with a single account. Distributing your applications across accounts increases the chances of allotment. Opening multiple demat accounts and filing numerous applications for the IPO might be complex, but the process is very straightforward.
You might be wondering about filing multiple applications with a single PAN card. The mystery is that you should rope in your family and friends and motivate them to submit the IPO application on your behalf using their accounts. In this way, you can harness the power of multiple demat accounts.
4. Opting for High Price Band Cut-Off
You might have mistaken the bid price with the cutoff price. While the company decides the cutoff price through their book building price, the bid price is the price you prefer to book your lot. Companies set different price ranges in their book-building process. It is considered safe to opt for the cutoff price. This is because you are bidding at the highest level by bidding at the cutoff price.
Let us understand this with the help of an example. If the price range on offer is Rs. 700 to Rs.750, the cutoff bid is priced at Rs. 750. Bidding at this level enhances the chances of allocation. Bidding at this level enhances the chances of allocation. Going in for lower price bands is not advisable.
You can only compete with other bidders if the IPO gets subscribed. Please note that the bids considered for allocation in an oversubscribed IPO are the ones made on the cutoff price.
5. Apply Early
An initial public offering in India is usually open for three days. You should apply within the first two days to maximise your chances of allocation. More often than not, investors apply for the IPO on the last day of issue.
They wait to see the response of the investors (Retail Investors, High Networth Individuals, and Qualified Institutional Buyers). While this approach could have merits if you are confident about the company, you should apply within the first two days, irrespective of the demand.
Please remember that filing your application on the last day can expose you to unexpected challenges. For example, your bank accounts could become unresponsive because of the applications filed by high-net-worth individuals (HNIs) and Qualified Institutional Buyers (QIBs). Technical glitches could also cause issues. In summary, applying early increases your chances of IPO allotment.
6. Mandate Request Approval
Most investors who apply for an IPO consider the task done as soon as they use the IPO through their broker. Only a little remains to be done after the application, but one step remains to be completed, failing which your application will not be considered for allocation. Once you complete your IPO application, you will receive a mandate request through your broker’s mobile application or website, as the case may be. Your money is considered frozen for investment only if you accept the mandate. Missing this simple step can make you miss your allocation opportunity.
Conclusion
IPOs evoke much interest among investors in India, but few get the final allotment. In this article, we have highlighted the points that could considerably increase your chances of securing your allotment in your dream company.
For example, we’ve seen how it is always advisable to apply for the IPO on the first or the second day to maximize your allocation chances. A late application can lead to issues. To sum up, you should start by getting the basics, such as correct information filing, and then move on to the technicalities, such as selecting the price band and mandating request approval. Following these simple steps, your allocation in the upcoming IPO 2024 will not be far from reality.
