You can place a bid for an IPO online or through a physical application form.
The company coming out with an IPO provides a price range (known as a price band) for the shares. You need to pick the price within that range. The price range is typically announced a few days before the IPO opens for bidding.
The company compiles all the bid requests from different investors to decide the final price of the shares.
Once the IPO bidding period ends, the company and its underwriters assess the demand for the shares at various price levels. Based on the bids received, they determine the final issue price at which the shares will be allotted to investors.
The process of IPO bidding is how investors express their interest in buying shares of the company before it gets listed on the stock exchange.
Main Points –
- PAN card for identification is needed to bid for an IPO
- The 16-digit depository participant ID (BOID) given by your stockbroker needs to be mentioned to identify your demat account.
- Fill in the number of shares, price at which you want to bid, and other necessary KYC information before you submit your application.
- The shares will be automatically credited to your demat account if allotted
How Does IPO Bidding Work
Following is the chain of events associated with the IPO bidding process:
#1. IPO Announcement
The company that wants to go public announces its intention to issue an IPO. They provide details about the number of shares to be issued, the purpose of the IPO, and the expected timeline.
#2. IPO Approval and Issue Open
The company files a Draft Red Herring Prospectus (DRHP) with SEBI for getting IPO approval.
Post which the company prepares the Red Herring Prospectus (RHP), a preliminary document that contains all the necessary information about the company, its business operations, financials, risks, and the proposed IPO.
It is called “Red Herring” because it doesn’t include the final issue price or the size of the offering.
#3. Announcement of Price Range
A few days before the IPO bidding opens, the company and its underwriters determine the price range at which the shares will be offered to the public.
For example, if the price range is set at Rs. 100 to Rs. 120 per share, investors can bid for the shares within this range.
#4. IPO Bidding Period
The IPO bidding process is open for a specific period, usually 3-4 days. During this period, investors can place their bids through their brokers or online trading platforms.
IPOs in India, have three major bidding categories – Retail Individual Investors (RIIs), Non-Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs).
As an individual, you can bid in the RIIs or NIIs category only.
#1. Retail Individual Investors (RIIs): These are individual investors who can apply for shares the total worth of which is below Rs. 2 Lakhs.
RII category is designed to encourage retail participation in IPOs.
#2. Non-Institutional Investors (NIIs): These include High Net Worth Individuals (HNIs), body corporates and other investors like HUF who can apply for an amount more than Rs. 2 Lakhs.
#5. Bidding Process for Investors
Bidding at a Specific Price: You can bid at a specific price within the price range, specifying the number of shares you want to buy at that price. It is as simple as that.
But if you are unable to decide the price then you can bid at the Cut-off price.
Cut-Off Price: you don’t specify a particular price but agree to buy shares at the price where the response is maximum within the given price range.
For example, in an IPO with a price range of Rs. 500 to Rs. 550, the company gets maximum bids at Rs. 540 then it can declare Rs. 540 as the cut-off price.
All investors who have not mentioned any price buy chose the cut-off option will be allotted shares at Rs. 540, the cut-off price.
#6. IPO Allotment
Once the bidding period is over, the company and its underwriters review the bids received at various price levels.
They determine the demand for shares at different prices and decide the final issue price.
Prerequisite for IPO Bidding
Keep ready the below things before you participate in an IPO bidding
#1. Demat Account (16-Digit BOID Number)
A Demat account is like a digital wallet that holds your shares and securities in an electronic form. This is where your shares will get credited if your bid is successful and you are allotted shares of the company.
Demat account is mandatory for trading and holding shares in India.
#2. Trading Account
The trading account allows you to sell the stocks that you have received in an IPO. It is not mandatory to have a trading account.
But having a trading account helps you to buy and sell stocks and other securities and realize investment and trading profits.
#3. PAN Card
Having a Permanent Account Number (PAN) is a must for identity proof and income tax in case of all financial transactions, including IPO bidding.
The PAN card is linked to your Demat and trading accounts and keeps track of your financial transactions.
#4. Bank Account
You need to have an active bank account, linked to your demat and trading accounts. Bank account is used for the transfer of funds during the IPO bidding process and for receiving refunds in case of unsuccessful allotment.
IPO bidding requires you to have sufficient funds in your bank account to cover the bid amount. The amount to be blocked in the bank account depends on the number of shares applied for and the bid price.
#5. Eligibility for the Retail Category
If you want to bid in the retail category, then you should apply for shares worth below Rs. 2 Lakhs apart from fulfilling other conditions.
Different Methods of Bidding in an IPO
ASBA (Applications Supported by Blocked Amount) is one of the methods of bidding in an IPO.
ASBA is the widely used application process introduced by the SEBI to facilitate IPO bidding in a more efficient and investor-friendly manner.
Below I have explained the various methods to bid in an IPO.
#1. ASBA (Applications Supported by Blocked Amount)
ASBA allows you to apply for the IPO through your bank or financial institution, which should be registered as an ASBA participant.
You need to log in to your mobile app or net banking to apply for an IPO. Find the “IPO Investment” section.
Your bank will ask you to register if you are a first-time bidder. Provide your demat account number and verify using OTP to register.
When you bid, the application amount is blocked in your bank account until the IPO allotment process is completed. If your bid is unsuccessful, then the blocked amount is unblocked to your bank account.
The money lies in your bank account till the allotment is over. It only leaves when you are declared successful in the IPO allotment.
#2. Physical Bidding Using Application Form
You can also apply for IPOs through physical application forms available from designated banks or brokers. But you need to do the paperwork.
In this method, you need to submit the filled-in application form, along with a cheque or demand draft for the application amount, to the designated bank or IPO collection center.
#3. UPI (Unified Payments Interface)
Online bidding through brokers can be done using the UPI payment method. Stockbrokers provide the option to apply for IPOs online through the trading platform.
Under this method, you can log in to your trading account, select the IPO you want to apply for, and place the bids online.
You need to mention your UPI ID linked to your bank account to bid for the IPO shares. Your stockbroker sends your bid to the stock exchange once you make an application using the trading platform or mobile app.
The exchange forwards the bid to the bank through NPCI to get approval on the UPI app. Next, you need to approve the UPI mandate so that your IPO application is complete.
Below is the Video showing IPO bidding using UPI
In case you want to cancel the IPO application then you can do it before the closer of the IPO.
You can pick the ASBA or UPI method of bidding in an IPO as the process is online, easy and can be completed comfortably from your home or office.
Let me know in the comments if you want further information or face any difficulties.
IPO bidding is the process through which investors express their interest in buying shares of a company that is going public through an Initial Public Offering (IPO).
Investors place bids for the number of shares they want to buy and the price they are willing to pay within the specified price range.
ASBA (Applications Supported by Blocked Amount) is a mechanism introduced by SEBI to facilitate IPO bidding.
With ASBA, the application amount is blocked in the investor’s bank account until the IPO allotment process is completed, ensuring the safety of funds and faster refunds in case of unsuccessful allotment.
You can apply for an IPO through ASBA by submitting the application through your bank or financial institution, which should be registered as an ASBA participant. The bank will block the application amount in your bank account until the IPO allotment is completed.
Yes, you can revise the bid after submitted but before the IPO subscription close. You can also withdraw the bid before the IPO bidding period ends and submit a new one if needed.
The final issue price is determined based on the demand for shares at various price levels during the IPO bidding period. The company and its underwriters assess the bids received and set the price at which the shares will be allotted.
Yes, you can apply for multiple IPOs at the same time. Each IPO application is considered separately, and the allotted shares and the blocked amount will be specific to each IPO.
No, having a Demat account is a prerequisite for applying for an IPO. The allotted shares will be credited to your Demat account after the IPO listing.
Yes, applying at the cut-off price in the retail category gives you the advantage of not specifying a particular price.
If the final issue price is lower than the highest end of the price range, you will get the shares at a lower price.