It is often said that buying a stock and holding it for a long time is the best strategy. One should, however, buy at the right price. While there are various parameters to ascertain the right price of a security, the chances of getting the price right are high during the initial public offering. When the shares of a private company start trading for the first time on a stock exchange, it is known as an IPO. One can subscribe to an IPO and buy the shares of a company before they debut on the exchanges. Let us understand the finer details of an IPO, before proceeding to the IPO application through UPI.
Sub-components of IPO
There are various terms associated with an IPO like an offer for sale and follow-on offer. An IPO can be a fresh issue of shares or an offer for sale or a combination of both. In the case of a fresh issue, the company issues new shares and the fund collected goes to the company. The funds raised through a fresh issue of shares is used for purposes like expansion and debt payback by the company. Contrary to a fresh issue, in an offer for sale, existing shareholders offload their stake and the proceeds go to the shareholder. The company doesn’t get any capital in the case of an offer for sale. A follow-on offer is not an IPO as the shares are already listed on the exchanges. A follow-on offer or FPO is launched by a company to raise additional funds.
Subscription to an IPO
Before an IPO opens, the dates for opening and closing and the price band for subscription is announced. While subscribing to an IPO, one has to apply for a specific number of lots, each having several shares. Under the ASBA system developed by the Securities and Exchange Board of India, an amount equal to the value of shares subscribed by you gets blocked in your bank account. Only an amount equal to the shares allotted to you gets deducted from the account. After some recent changes, the market regulator has allowed investors to apply for an IPO through UPI. Let us understand how to apply for an IPO through UPI.
How to apply IPO using UPI?
The addition of UPI or Unified Payments Interface in the payment options for an IPO has made subscribing to IPOs easy. To apply IPO through UPI follow the steps given below
– Download and install any app having UPI 2.0 enabled
– Create a UPI ID and m PIN for the bank account that is linked to you demat and trading account
– Login to the stock broker’s app and go to the IPO menu
– Choose the IPO of your choice from the ones open for subscription
– Check the details of the IPO like opening and closing dates, issue size, lot size and read the DRHP carefully
– Provide the UPI id of the bank account linked to your trading and demat account
– Specify the number of lots you want to bid for
– If you want to subscribe at the cut-off price, click on the checkbox with a cut-off price
– For placing a bid at any other price, enter the price in the space provided
– Read the agreement and submit
– After submission, you will get a mandate request in the UPI app
– After accepting the mandate, funds equal to the number of lots subscribed will be blocked in the account
– If your bid is successful and you receive an allotment, funds are deducted from the bank account and shares are credited to the demat account.
– If shares are not allotted to you, the blocked amount will be released on the date of allotment
The facility to invest in IPO through UPI was initiated by SEBI in 2019. The increasing penetration of UPI and its simple interface has made it a crucial payment option. The market regulator has made it mandatory to offer UPI 2.0 option for IPO applications. The addition of UPI in the list of payments for IPO has improved the accessibility of public offerings.