IPO FAQ
What is an IPO?
An Initial Public Offer (IPO) is the selling of securities to the public in the primary stock market. Company raising money through IPO is also called as company 'going public'. From an investor point of view, IPO gives a chance to buy shares of a company, directly from the company at the price of their choice (In book build IPO's). Many a times there is a big difference between the price at which companies decides for its shares and the price on which investor are willing to buy share and that gives a good listing gain for shares allocated to the investor in IPO.
Who decides the Price Band?
Company with help of lead managers (merchant bankers or syndicate members) decides the price or price band of an IPO. SEBI, the regulatory authority in India or Stock Exchanges do not play any role in fixing the price of a public issue. SEBI just validate the content of the IPO prospectus.Companies and lead managers does lots of market research and road shows before they decide the appropriate price for the IPO. Companies carry a high risk of IPO failure if they ask for higher premium.
What is Follow on public offering or FPO?
Follow on public offering (FPO) is public issue of shares for already listed company.
What is the difference between Book Building Issue and Fixed Price Issue?
Initial Public Offering can be made through the fixed price method, book building method or a combination of both. Difference between shares offered through book building and offer of shares through normal public issue (Source: BSE):
| Features | Fixed Price process | Book Building process |
| Pricing | Price at which the securities are offered / allotted is known in advance to the investor. | Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known. |
| Demand | Demand for the securities offered is known only after the closure of the issue. | Demand for the securities offered can be known everyday as the book is built. |
| Payment | Payment if made at the time of subscription wherein refund is given after allocation. | Payment only after allocation |
What is Applications Supported by Blocked Amount (ASBA)' payment method for IPO?
Introduced in July 2008, Applications Supported by Blocked Amount (ASBA) Process, is the alternative payment method (optional) for IPO application where the IPO bidding amount remains in investors account, but blocked by the bank until allotment is done. This is an addition method of payment, available exclusively for retail individual investors through participatory banks (SCSB's). Technically there is no refund process for this kind of payment option as only the required money for allocated shares is withdrawn from the investors account. Investor can use the remaining money as soon as the required money is withdrawn and the money gets unlock.
Can an investor cancel or withdraw the IPO Application (or bid) submitted using ASBA payment option through SCSB's?
Yes.
How many days it usually takes to get an allotment of an IPO?
Book Building IPO allotments usually complete with in 15 days of IPO subscription closing date. Once allotment is done, it takes another 3-5 working days to receive shares. Fixed Price IPO takes around a month for allotment and then 3 to 5 days to receive.
How can I get confirm allotment?
It completely depends upon the rate of oversubscription and only thing you can do is to applied for maximum lots on last day but it has more risk for a underperformance IPO. Also make sure to put the correct DP ID and Client ID details in the bid/application forms.
What is the formula for shares allotment in an IPO?
Once the subscription closes, one can make out probability of allotment. e.g. XYZ ltd. issues IPO with lot size of 60, let's assume that retail subscription was 5 times after closure. So it's clear that people who applied for 5 lots will definitely get atleast 1, but for those who applied for less than 5 lots it will be done on lottery basis. i.e. for those who applied for say 1 lot 1 of every 5 will get allotment. For detail knowledge of shares allotment formula, please refer Basis of allotment document of recent IPO's.
How many days it takes to get refund of an IPO?
It usually takes 3 to 10 days to get IPO refunds after IPO allotments are done by the registrar of the IPO. It also depends on how you are getting the refunds. Refunds are usually process through two different ways:
1.Electronic Clearing Service (ECS): Also known as direct deposit in bank account, this method is quickest, most convenient and hassle free. In ECS the refund amount is directly deposited in your bank account which is available immediately. ECS is available only in few cities in India and also depends on the choice of registrar.
2.Cheques: Cheques are conventional way of sending refunds. This method takes a little longer as cheques takes few days to clear. Usually cheques send through registered post through post office and takes 3 to 5 days to receive it.
What should I do to make sure I get refund through ECS?
The applicants are required to ensure that bank details including MICR code (9 digit code which appears in the cheque) maintained at the depository level are updated. If you are not getting refund, check the bank information you provided in your IPO application form. If you are applying IPO's online though an online stock broker, make sure that he has correct information of your bank account.
Why am I not receiving my IPO refunds through ECS?
It's not mandatory for IPO Registrar to send refund amount through ECS. It's up to a registrar to choose city in which they want to send money through ECS and send remaining refunds through registered post. In case of wrong or incomplete bank account information, registrar sends the refund through cheques. For ECS, your bank account should be in the city where registrar is issuing refund through ECS.
Is it mandatory to have a demat account to apply in an IPO?
Yes it's mandatory to have a demat account to apply in an IPO.
Can a person have more than one demat account on his name?
Yes, a person have more than one demat account on his name. There is no restriction on number of demat accounts which an investor can open. An investor can open more than one account in the same name with the same DP and also with different DPs. For all the accounts, investor has to strictly comply with KYC norms including Proof of Identity, Proof of Address requirements as stipulated by SEBI and also provide PAN number. The investor has to show the original PAN card at the time of opening of demat account.
What is the role of SEBI with respect to public issues?
The rules, regulations and procedures relating to public issues in India are governed by the Securities and Exchange Board of India (SEBI). Any company going public in India should get approval from SEBI before opening its IPO. Issuer company's lead managers submit the public issue prospectus to SEBI, provide clarification, make changes to the prospectus suggested by SEBI and get it approve.
