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IPO stands for initial public offering, which is a process of raising the funds from the public by a private entity. In this process, the companies who need funds transfer their shares to the investors and raise money from them.
The IPO is floated in the primary market as the companies are listed for the first time. By offering a fresh lot of shares private companies get transformed into publicly traded companies.
Many of the retail investors complain that most of the time they are not allotted an IPO. And many of us being IPO applicants had experienced the same trouble in the past. One of the reasons behind a low allotment chance is that companies issue a standard percent of equity for retail investors while there are many applicants who are willing to applying.
This makes it somewhat parallel to the lottery system. As few lucky people are rewarded with a lottery, IPO is also awarded to a few form large applications.
But, there are certain ways to increase the IPO allotment possibility. So, we will be sharing few tips for increasing IPO allotment chances.
5 tips for increasing IPO allotment chances
1. Apply for IPO with multiple accounts
People usually apply for IPO and book 2-3 lots from the same account for increasing the allotment chances but one should not apply multiple lots from the same account. Rather applicants should apply for IPO with multiple Demat accounts. The other Demat accounts owned by your friends and family members should be used for increasing the chance of allotment approval.
As booking, multiple lots from one account are treated as a single application and do not hike the IPO approval chances. So, it is better to use different Demat accounts held by different individuals for elevating the chances for the allotment.
2. Bid at the maximum price
While filling the IPO application, always enter the maximum bid price from the given price band. The investment banker through which the company has filed its prospectus determines the ideal price range for going public. And that range is listed on the application for the offer applicants.
Example: Applying for an IPO of ABC company whose price range is Rs. 200-208. It is recommended to bid for Rs.208 (cutoff price) as if the offer got oversubscribed the bids with higher prices will be considered and hike the chances of the allotment. This is usually followed in case the IPO is oversubscribed, while in the case of under-subscription there is a chance that a low price bid also got approved.
If you are keen to know the IPO process in India then check out the link below:
3. Buy parent company shares for increasing the chances
This technique is very beneficial for the applicants to the initial public offer as this involves representing as an already shareholder of the company. We know that there are various aspiring companies whose parent company is already listed on the stock exchange.
A bidder can buy as low as one share of the parent company whose sub-entity is open for IPO. It makes a retail investor bid through the shareholder category and increases the probability of allotment.
Example: Jio introduces its public issue and you are willing to apply for the issue. Reliance Industries is a parent company. You can buy as low as one share of RIL to enter into the shareholder's category. Ultimately, it increases your IPO allotment chances.
4. Try to apply within two days of IPO arrival
When we fill the IPO application, we generally find out that IPO is open for 3 days. It is advised to apply for the application within two days.
Since on the last day, you may face some difficulties in connecting with your bank. As a lot of people are applying for it and you may experience some technical glitches with your online payment partner.
People generally feel that applying on the last day makes them aware of the initial response of investors towards the company. In that case, it is better to apply on the 2nd day or beginning of the 3rd day to prevent missing the last movement opportunity.
5. Recheck the application details
This is also one of the crucial tips for increasing IPO allotment chances. Rechecking the application details safeguard the applicant from rejection. Look for the main details that you have filled or if applying directly through UPI then add the correct id, lot size, and bid price to avoid any confusion.
Also, make sure that your PAN card name id, DOB, should match with that of your bank account to avoid mismatch.
Other reasons for no allotment of IPO
1. Due to an over-subscription, a few applicants are allotted the shares.
2. Also, if the applications for the public offer are highly over-subscribed then it is quite difficult for the exchange board to allot. So, to come to a conclusion they randomly pick the number of allotments, just like the lottery system. And it's a stroke of luck for the people who are allotted with IPO.
Maybe you are not that lucky to be awarded.
Take away
Applying for the IPO is easy but there is no surety that you will be allotted with the IPO or not. But following few tips increases the allotment probability.
From the article, we derived some of the tips for increasing IPO allotment chances and got an overview of some of the causes that reduce our IPO allotment prospect.
The main 5 suggestions are Applying for IPO with multiple accounts, Bid at the maximum price, Buy parent company shares for increasing the chances, Try to apply within two days of IPO arrival, and Recheck the application details.
Also read: Best Demat and Trading Account in India 2021
