Table of Content
An Initial Public Offering (IPO) marks a major milestone for any company looking to raise growth capital and get publicly listed. However, the IPO process tends to be complex, with several regulatory and procedural requirements. As a result, retail investors often have many questions regarding IPO investments. To address these concerns, we have compiled the most frequently asked questions (FAQs) on IPOs in India.
Read on as we provide simple, reader-friendly explainers to help you navigate the world of IPOs easily.
Ans. The main difference lies in how the offer price is determined:
1. Fixed Price Issue: The company decides and declares the final offer price before the issue opens. Investors are aware of the exact price at which the shares will be allotted.
2. Book Building Issue: The offer price is discovered only after gauging investor demand across the price band. The company provides a floor price (minimum) and cap price (maximum). Investors bid within this band and the final price is fixed post issue closure. Only the price range is known upfront.
There are two ways to buy stocks: fixed price issues and book building. In a fixed price issue, you pay upfront. In a book building, you pay only a part upfront. The final price depends on the investor’s demand. This helps to find a fair market price for the shares. Retail investors can participate by placing bids at a ‘cut-off’ price.
Ans. SEBI has classified IPO investors under 3 broad categories:
Resident and non-resident Indian individuals, HUFs applying ≤₹2 lacs
Investors applying >₹2 lacs (including corporates and HNIs)
Mutual funds, FPIs, insurance firms, banks etc.
Up to 60% of the QIB portion can be allotted to anchor investors – institutional investors investing ≥₹10 crores in IPO. This helps create positive signalling for IPO demand.
Ans. To ensure wider participation, SEBI has mandated IPO reservations for each investor category:
The allotment methodology also varies:
This means under subscribed portion in any category is allowed to be allotted to oversubscribed categories. The allotment aims for a widespread shareholding, especially amongst retail investors.
Ans. The DP ID refers to Depository Participant Identity, and the Client ID is your demat account number.
Indian securities are held electronically at the depositories – NSDL and CDSL. The demat account is opened via a Depository Participant (bank/broker). The DP ID and Client ID help identify your account to credit the allotted shares.
It is vital to ensure correct demat account details in order to receive successful credit of allotted shares. Incorrect details can lead to allotment getting stuck or lost.
Ans. PAN is mandatory, even for minor applicants, while applying for an IPO. Key things to note:
Thus, double-check PAN details for accuracy at the time of bidding to avoid allotment issues later on account of any minor errors.
Ans. As per SEBI rules, an IPO has to remain open for a minimum of 3 working days and a maximum of 10 working days.
In case of issues made during the book-building process, the period can be extended by 3 extra working days in case of any revision to the price band. This allows investors a chance to revise their bids at the new price range.
Thus, the total issue period can range from 3-10 days for fixed-price issues and 3-13 days for book-built issues.
Ans. Market lot size refers to the minimum number of shares that investors can apply for in the IPO. It is also termed as minimum bid lot or minimum application size.
For instance, if a market lot is defined as 150 shares by the company, then an investor has to apply in multiples of 150 shares, i.e. 150, 300, 450, and so on. One must make a bid for at least 150 shares or an odd number like 325 shares.
The lot size helps determine the bid amount payable for retail investors applying at the cut-off price. This is mathematically calculated as:
Ans. No, multiple bids made under the same PAN in the same IPO are strictly prohibited by SEBI regulations.
If an investor applies multiple times in the same name, all the applications will be rejected. Investors must restrict themselves to a single application per PAN/Demat account in the same IPO issue.
Any investor circumventing the restriction through using different bank accounts, etc, still providing the same PAN is deemed to have made multiple applications. Hence, caution must be exercised in this aspect.
Ans. After an IPO closes and share allotment is finalised, the registrar publishes an allotment details report called Basis of Allotment. Key information includes:
1. IPO subscription level
2. Demand for shares across investor categories
3. Ratio of overall allotment and allotment for each category
The ratio reflects the level of IPO oversubscription. Say for a 5:1 ratio; it implies that only 1 out of every 5 bidders will receive the allotment out of all valid applicants.
The basis of allotment helps assess the probability of allotment before the outcome is known based on application size and investor category. A ratio of 0.4:1 means 40% of bidders will get shares. FIRM allotment ratio denotes guaranteed allotment for every valid bidder.
Ans. To promote wider public shareholding, SEBI wants every IPO to have adequate retail participation, HNIs, and institutions. They have hence imposed a 35% set aside for the retail category.
The ₹2 lakh threshold aims to clearly demarcate between retail and HNI investors for this allocation. SEBI also regulates allotment methodology for the retail portion to maximise the number of investors receiving share allotment through defined mathematical allotment ratios.
Thus, capping helps channelise larger chunks of shares on a guaranteed basis to genuine small investors that form the retail base rather than wealthy individuals bidding in ebbs. This is aligned with SEBI’s objective of greater financial inclusion via markets.
Solution: An investor can withdraw an IPO application during the issue bidding period in the following way:
The other way is to directly approach the intermediary through which the application was made before the close of the IPO and submit a withdrawal request. Do keep relevant application details handy for reference.
Ans. The cut-off price, being the final offer price at which shares are allotted, depends on multiple factors considered primarily based on response to the building process:
a) Demand at various price levels during the bidding period
b) Price at which underwriters are willing to underwrite the issue
c) Current market conditions & investor risk appetite
d) Precedent public issues by similar sector companies
The lead managers analyse both quantitative and qualitative factors around investor bids received at different prices to advise issuer companies on appropriate cut-off prices from a broad investor perspective.
The aim is to discover a fair price satisfying company objective as well as investor demand based on revealing information during book building instead of having to reset unrealistic offer prices post listing later.
Ans. As per SEBI guidelines, investors can make a maximum of 5 separate IPO bids from a single bank account using the ASBA facility. Here, the same bank account implies the same investor, i.e. PAN being the same across the applications.
Therefore, applying more than 5 times per IPO via the same ASBA account will render the bids invalid and liable for outright rejection. Investors must strictly adhere to this application limit mandated by SEBI.
Ans. There is no fixed formula for the number of bid lots that guarantees the highest probability of allotment. Consider two scenarios –
Case 1 – IPO heavily oversubscribed in the retail category
Applying for more lots will yield less than proportionate allotment as SEBI mandates a minimum of 1 lot allocation per valid retail bid through a lottery system. So, applying for just 1 lot suffices.
Case 2 – Retail portion undersubscribed in IPO
Applying for more lots would yield proportionate allotment. However, the lack of retail interest itself indicates weak investor appetite, denting listing prospects. So, applying for just 1 lot makes sense.
Thus, applying for 1 retail lot balances both outcomes. One can assess overall retail demand during bidding to take the final call.
Ans. IPO issuer companies have to mandatorily ensure share credit in the demat account of successful allottees before the date when stock lists become available for trading on exchanges.
The credit generally happens 1-2 working days prior to the proposed IPO listing date. This allows investors to check receipts before listing and take the next steps. In case of any delays, immediately contact the registrar or broker/bank through whom the bid was made.
Ans. A trading account is required only for investing in secondary markets once IPO shares are listed. A trading account is not mandatory when applying for an IPO, which is a primary market activity.
One can submit an IPO application using an ASBA account and provide demat account details to receive the eventual allotment. Having a linked trading account makes it easy to apply through a broker platform and also serves post-listing needs. But it is not a must.
Ans. Anchor investors represent a crucial sub-set within the Qualified Institutional Buyer segment. Key differentiation aspects are:
Anchors thus help instil initial momentum and positive signalling. Relaxations in lock-ins and firm allotments were provided in return for committing large sizes early.
Ans. Yes, IPO bidding has been enabled via BHIM UPI mobile applications as an alternate payment gateway option without relying on net banking.
Investors need to provide UPI ID instead of ASBA bank account details while filling out the form. On bidding, a mandate request gets initiated from the broker portal to the linked BHIM app.
By approving the block request, the requisite amount gets debited from the bank and adjusted finally post-share allotment. Thus, seamless IPO investing is now possible using BHIM UPI as well.
Ans. IPO shares allotted to investors cannot be sold or transferred in any form in the grey market before the official listing and commencement of trading on stock exchanges.
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