How to Buy IPO Stocks Online? [Guide for New Investors]

What is an IPO?

IPO or Initial Public Offering is the process when a company, for the first time, allows public to buy its shares. Before launching an IPO, the shares of a company are usually held by the directors or the angel investors and are not available for retail investors.

IPO is a one-time process, where retail investors can buy the shares of the company. After the IPO, the company is listed on the stock exchanges and traders and investors can trade in the stocks of the company. The process of IPO is also referred to as “going public”. The IPO process is also regulated by SEBI.

Types of IPO

IPOs can be classified in to two types and it depends on the company to choose one out of them. A company can launch its IPO through Book Building Issue or a Fixed Price Issue. A combination of both them is also possible in certain cases.

• Fixed Price Issue

  It is the older method of launching an IPO. The underwriters and the company evaluate the price of the offerings after assessing various factors including the assets and liabilities of the company. Based on all such factors, a price is fixed for the offering. All the quantitative and qualitative factors are evaluated before the issue. The price fixed is usually lower than the market value and there are chances that the price fixed can be undervalued during the public offering. As a result, Fixed Price Issues usually attracts the interests of investors and help in a positive revaluation of the company.

• Book Building Issue

  This concept was introduced recently in India. Unlike fixed price issue where we have a fixed price for the applications, this method has a fixed price range. Investors can choose any amount from the price range for their application. The lower price from the range is known as floor price and the higher price is known as cap price. After the evaluation of the bids, the price of the stocks is fixed. As the book is built after each day, the demand of the shares is known.

How to Apply for an IPO Online?

To apply for an IPO, you need to have a demat account and a trading account. Whenever a company starts accepting applications for its public issue, you can visit the website of the depository participant (DP) or the bank which is providing the facility for application to the IPO. You must know your 16-digit depository participant ID before applying. The DP ID will be provided by your broker. Once you have all the information, you can fill the application form for the issue.

To apply for an IPO, you need to have a demat account and a trading account. Whenever a company starts accepting applications for its public issue, you can visit the website of the depository participant (DP) or the bank which is providing the facility for application to the IPO. You must know your 16-digit depository participant ID before applying. The DP ID will be provided by your broker. Once you have all the information, you can fill the application form for the issue.

Once the shares are allotted to you, they will be transferred automatically to your demat account. You can trade them after they are listed on the bourses.

Benefits of Online Application

The online process has completely transformed the IPO application process. It is less hectic and intensive compared to the offline process which required lot of paperwork. Considering the current situation of the pandemic, the online process provides the investor with a completely contact-less application process.

The investor can easily apply online using his demat and bank account. If shares are allotted to him, they are automatically transferred to his demat account, else the amount is refunded back to his bank account automatically.