If you are following the markets and are in touch with the stock markets for even a bit then you must have heard the phrase that “A company is going public”. Recently Paytm and Zomato have been in the news mostly for the IPO hype, but what is an IPO and why should you care?
Well, an IPO stands for “Initial public offering” which in simpler terms means when a company offers some of its shares at an initial price to some public investors for raising extra capital. The public investors can be institutional buyers like mutual fund houses and Big investors and some of the shares are offered to retail investors like us. So, to understand this even better you need to understand there are two types of markets,
- Primary market
- Secondary market
When you are buying a company share through an IPO then it is the primary market and you are the first-hand buyer for the company and after the IPO is done and the stock goes public then after that any transaction that takes place for the shares, they are sold by the primary investors and the company itself is not involved and you become the second-hand buyer of the shares, it can be at some higher prices or sometimes it might trade for discounted prices which then becomes the secondary market.
Now, let’s get to the question Why should you care?
To answer this question we have to classify ourselves as long-term investors and Short term investors.
Now, two things might happen after the listing goes public
The listing price might go even higher and starts with a kick start looking at the fundamentals and future prospects of the company and continues to trade for higher prices or comes down after a certain time.
The listing could be at a discounted price and then after trading for some time, ranging from a day till the company delists the price may increase or may tank even further.
So, for the short-term investors, the listing gain is what is important. If the stock price lists for a higher price then the short term investors can book good profits but this doesn’t mean that the stock price is bound to list higher, remember nothing is bound to happen in the stock market so, do your own research, but for the long-term investors, the listing price doesn’t matter much and they look for the future prospects of growth for the company and stay in the company as shareholders.
If any company IPO is oversubscribed which means the demand surpasses the supply then the IPO becomes a lottery and you might get or not get the shares in the first place and those who don’t get the shares get their money refunded.
Now, when you are somewhat clear about the importance of IPOs you can move forward with the process of getting registered for your first Initial public offering and Zerodha makes it easy for you.
You can follow the below-mentioned steps and instructions to get your first IPO and also to increase the chances of getting the IPO.
How to Apply for an IPO on Zerodha online?
The first and foremost step is to create a Demat account with Zerodha in which the CDSL will allot the shares to you. You can check out our review and all the steps mentioned in that article to open your account all paperless or offline with Zerodha.
In the second step, you need to have a UPI ID as no other means are supported by Zerodha for applying for an IPO. You can apply through your net banking account but for that, you need to contact the bank in which your account is located.
Now, you can log in to Zerodha with your client ID> Open your console (the back office portal of Zerodha)> goto the portfolio option>and click on IPO to apply>in the next step enter the quantity and price. Zerodha makes it easy for you by listing all the upcoming IPOs and you can choose to which IPO you want to apply according to your research.
Once you apply for a listed IPO then you will get a mandate link on your UPI app which once approved might block the amount from your UPI ID for which one lot is available. Don’t worry if you are not allotted any amount of shares then the money will be refunded to your bank account.
The IPO service is free for Zerodha users and there is no whatsoever charge is applicable.
When you get your IPO allotment approved then you will get a notification from the CDSL website and the shares will be transferred to your Demat account otherwise the whole amount will be refunded to the same UPI ID you used to apply for the IPO.
Please note that on Zerodha IPO can be applied by the UPI method only and for application through net banking you need to contact your bank. Also, note that the funds added to your Zerodha account cannot be used for the application process and only UPI is valid for IPO application.
Now, as already mentioned if an IPO is oversubscribed which simply means that the demand surpasses the supply then the shares are allotted by a computerized method and is a kind of lottery in which you are not guaranteed to get the allotment and which is very common with fundamentally strong companies.
So, to increase the chances of getting the allotment you can apply through multiple Demat accounts for IPO listing but, do remember only a single IPO can be applied for a single PAN card so, you can use your relative’s account or any family member account to increase your chances.
Most of the retail investors apply for IPO in the influence of listing gains but, you need to remember to book timely profits as most of the time it is witnessed that the price starts trading below the listing price in a matter of days due to profits getting booked.
This should not be treated as investment advice and is just an opinion, It is advised to do your own research before getting into the IPO game.
