Home >Money >Calculators >One Minute Guide: Bidding in an IPO

Since January this year, there have been over 50 initial public offerings (IPO); more than half have come out in the past three months. An equal number are in the pipeline for 2016. These days, IPOs go through the book building process, where a price band is announced. The highest price is called cap price and the lowest is floor price. Investors have to bid in this price range. The issue price—called cut-off price—is decided based on the bids received. Only bidders who quoted higher than or equal to this price can get allotment of shares.


Using your demat and online trading account, you could apply for IPOs through a broker or bank. All online platforms have an IPO page where you can choose the issue you want to apply to. You can choose to invest at the cut off price or make bids (only retail investors can bid at the cut off price). Then, enter the number of shares. If you choose to bid, enter the bid price along with the quantity. You can make a maximum of three bids. Once the application is submitted, you receive details such as IPO application number and transaction details. Do make sure that you have enough funds in the linked account for the application.


Bidding at lower prices reduces chances of getting shares if the cut-off price comes in higher. For instance, if the price band is 90-100, you bid at 93 and the cut-off comes at 96, you won’t get any shares. To increase the chances of allotment, especially in an offer that might be oversubscribed, you need to bid at the cut-off price. But since this is unknown at the time of bidding, the application would go through at the cap price. The price difference between the application and cut-off price would be refunded after allotment. The maximum subscription amount for retail investors is 2 lakh. If you subscribe for more than that, you would be considered a high net worth individual (HNI). Allotment for HNIs (10-15%) is much lesser in IPOs than for retail investors (35%).


Application Supported by Blocked Amount (ASBA) is a facility offered by banks wherein your application amount is blocked and debited only when the shares get allotted. Till then, you receive interest on the blocked amount. With brokerages, you have to pay the entire application amount and wait for the refund, if any, after the allotment. So, your money gets locked in. With ASBA, the amount remains in the savings account. You can also revise or withdraw your bid by giving an application to the bank as long as the IPO is open. You can give five IPO applications per issue through a single bank account. But ASBA is available only at select branches of banks (see websites of BSE Ltd and National Stock Exchange for this information).

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