An initial public offering (IPO) gives you, the investor, an opportunity to buy shares of a company that is about to go public. IPOs have become a popular mode of investment as they enable you to grow your wealth manifold within a short period of time.
Subscribing to an IPO/FPO
You need to first obtain an IPO/FPO (follow-on public offer) application form, which is available from share brokers, lead managers, syndicate members, and collecting banks, both online and offline. You can pick a physical copy from vendors at major commercial streets in most towns (for instance, these are available outside the Bombay Stock Exchange).
In case of fixed-price issues, you need to deposit the following with the designated collecting bankers to the issue: a duly filled application form and a cheque/demand draft for the requisite amount. The names and addresses of the collecting banks are printed on the application form. Do remember that applications are valid only if the payment is made through a cheque or a demand draft as cash is not acceptable.
Before submitting, please ensure to screen the application form for any mistakes as incomplete/incorrect forms can be rejected.
You can also apply for an IPO through your trading account or bank account. Some banks offer trading, demat, and bank accounts in a single package to new account holders.
Why demat account?
Although you can apply for an IPO and receive shares in the physical form, it is advisable that you get them in demat (dematerialized) form as shares issued through an IPO/FPO are tradable only in the demat form.
Further, you should know that all IPO/FPOs of any security of issue size of Rs10cr or more have to be compulsorily in the demat form. Moreover, qualified institutional buyers (QIBs) and large investors (applying for over Rs2,00,000) can subscribe to an IPO only through a demat account.
You should also know that there are two depositories in India -- National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL). Both depositories have a huge network of authorized depository participants (DPs). You can open a demat account with any of these DPs.
When you fill the application form, make sure that you fill your DP ID and client ID details correctly. It is mandatory to own a PAN number.
Application Supported by Blocked Amount (ASBA) facility
Once you have activated your trading-cum-demat account, the next thing you should know about is the ‘Application Supported by Blocked Amount (ASBA) facility, which is mandatory for IPO applications. This facility is critical, as it authorizes banks to block the requisite money in your bank account.
As an investor, you should understand that the ASBA facility co-exists with the current process, wherein cheque is used as a mode of payment. Although ASBA is available in both physical and demat forms, it can be used to eliminate demand drafts and cheques. All you need to do is to specify your PAN, demat account number, bank account number, and bidding details in the application.
Before you go any further, there are a few terms you need to understand. A self-certified syndicate bank (SCSB) is a bank that offers the facility of applying through the ASBA process. ASBAs can be accepted only by those SCSBs whose names appear on market regulator SEBI’s website.
An SCSB will identify its designated branches (DBs) at which an investor can submit ASBA and can also identify the controlling branch (CB). The CB is the coordinating branch for the Registrar to the Issue, stock exchanges, and merchant bankers.
Investors can download and print the ASBA application forms from the websites of BSE and NSE. The form is made available at least one day before the opening of a particular public issue. Each ASBA form has a unique application number.
Please remember that a photocopy of the downloaded application form is not accepted. Thus, you need to submit the ASBA form, physically or electronically, to the SCSB with whom the bank account to be blocked is maintained.
Until finalization of the basis of allotment in the issue, or till withdrawal/ failure of the issue, or till withdrawal or rejection of the application, the application money will remain blocked in the bank account.
Please note that once the basis of allotment is finalized, the Registrar to the Issue will send a request to the SCSB for unblocking the relevant bank accounts and for transferring the required amount to the issuer’s account. However, in case of withdrawal or failure of the issue, the amount will be unblocked by the SCSB after it receives information from the pre-issue merchant bankers.