An initial public offering (IPO) is one where companies offer ownership to investors by raising capital and list their shares on the stock exchange. It can be a fresh equity offer when a company needs capital, or an offer for sale when existing investors of the company intend to part sell their stake, and/or a combination of both. For instance, in the case of Life Insurance Corporation of India (LIC), the Government of India being the sole promoter, is offering to sell 3.5 per cent stake as part of its disinvestment plan.
With record IPO offerings in the past two years of the post Covid-era, a continued surge of ‘new to market’ investors, along with a strong capital market performance, IPOs have become a buzzword, of late. However, investment decisions should not be based on whims or trends.
Here is a first-time equity investor’s guide to invest in IPOs.
How Does An IPO Work?
An IPO is an offer for the subscription of shares to the public. It can be offered as a fixed price issue (disclosed with the offer) or book building issue with a pre-defined range, i.e., floor price and maximum cap price.
If the bid is successful, you get the share allotment, else your blocked money gets returned to your bank account. In case of oversubscription or higher demand for the issue, the listing price generally remains higher than the offer price and vice versa. Thus, a share can be listed at a premium, at par, or discount on the basis of the the demand for the stock.
For instance, the price band of LIC IPO is fixed at Rs 902-949 per share. To buy shares in IPO, investors make the bid offer. On top of it, retail investors will get a discount of Rs 45 per share, and LIC policyholders are being offered a discount of Rs 60 per share on the offer price.
Prerequisites To Apply In IPOs
The Securities and Exchange Board of India (Sebi) is the regulator, while its intermediary depositories and stock exchanges play a key role in the offer and issuance of new IPOs to the retail public.
To apply for an IPO you will need the following:
A demat account with a Sebi-registered depository participant, and
A linked bank account with UPI mandate.
To sell these shares, you will require a trading account with a Sebi-registered broker.
Steps To Apply Online For IPO
The process to apply online for an IPO is as easy as booking a travel ticket online. Concisely, the steps are, as under:
Login to a mobile app or website of the broker/depository participant.
Click on the IPO option under the investment section.
Choose the listed IPO.
Submit the application using your UPI ID.
The chosen amount for investment will be blocked in your bank account. It will be debited or released based on the allotment success/failure of the application.
In short, an investor today can participate in IPOs and market-linked investment opportunities with a few taps on a smartphone.
LIC IPO: An Excellent Opportunity To Begin Your Investment Journey
With more than 28 crore individual policies and asset ownership equivalent to 18 per cent of India’s GDP in FY2021, LIC enjoys phenomenal brand recognition.
The LIC IPO is the largest public issue in the history of Indian capital markets, and the sheer size, reach and the brand value of LIC, makes it one of the most-awaited of IPOs. It is open for subscription till May 9, 2022. It can be the opportunity of a lifetime for investors, especially from the tier II and tier III cities and rural India to begin their investment journey with the brand they have trusted for years.
You are equipped with all the initial information on what it takes to apply for an IPO. That said, markets are volatile and call for due diligence. When it comes to investment, always think of decades; not of days.
The author is COO, Religare Broking.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)