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You have to participate in the IPO bidding process to get an allotment for the IPO shares. In simple words, the IPO bidding process is how investors apply to buy shares in an Initial Public Offering of a company.
In India, the IPO bidding process takes place via book building, where investors place bids within a price band. The price band is determined by the company.
IPO Bidding Process
An IPO (Initial Public Offering) is the first time a company raises money from investors and gets listed on the stock exchange. A company launches an IPO to raise money for expansion, research and development, acquisitions, etc. It gives early investors a profitable exit. Here’s how the IPO bidding process works:
Step 1: Company Files for IPO
The company files a Draft Red Herring Prospectus (DRHP) with SEBI (Securities and Exchange Board of India). Once approved, the company announces:
Price Band
Lot Size
IPO opening and closing dates
Step 2: Investors Place Bids
Investors can apply for IPO through their Demat accounts. Investors can apply in one of the three categories:
Qualified Institutional Bidder
Non-Institutional Investor
Retail Individual Investor
Employee
Shareholder
Step 3: Bidding
Investors select a price within the price band or choose the cutoff price (indicating willingness to pay the final issue price). Investors have to invest in lot sizes determined by the company. Lot size has fixed multiple of shares.
Step 4: Blocking of Funds
The funds through different application methods are blocked for the allotment of shares. The money gets debited only upon the allotment of shares. If shares are not allotted, the full amount is refunded.
Step 5: Price Discovery
Once the bidding closes, the company and its underwriters determine the final issue price based on the IPO subscription. QIBs get priority in allocation, followed by NIIs and then retail.
Step 6: Allotment and Refund
Finally, the allotment process takes place. If allotted shares are credited to your Demat account before the listing date. If not, the funds are unblocked/refunded.
How to Bid for an IPO
To bid for an IPO, follow the steps given below.
Step 1. Open Demat Account: Firstly, you will require a Demat account for bidding in an IPO. You can get one with any of the popular brokers like Zerodha, Upstox, Groww, etc.
Step 2. Check IPO Details: In the IPO section, look for important details like the price band, lot size, and opening and closing dates of the IPO.
Step 3. Choose Your Bidding Method: You can either go with the UPI method or the traditional ASBA (Application Supported by Blocked Amount) method.
UPI Method:
Log in to your broker app
Go to IPO section
Select IPO and enter UPI ID, lot size, and price
Approve the UPI mandate in your UPI app
ASBA Method:
Log in to your internet banking account
Go to ASBA IPO Section
Select IPO, enter required details, and submit the IPO application
The bank will block the bid amount until allotment
Step 4. Allotment Process: If allotted, the IPO shares will be credited to your Demat account. If not, the money is unblocked and refunded without any charges.
Step 5. Listing Day: Once listed on the stock exchange, you can either sell them or hold them, depending on your choice.
Final Thoughts
The IPO bidding process systematically takes place under the regulatory body SEBI (Securities and Exchange Board of India). It ensures that the entire process is carried out legally and transparently.
The process of applying for an IPO has also become easier with the internet being easily accessible through smartphones and advanced payment methods like UPI. Investors, especially retail, can now easily check and bid for IPOs simply by using their smartphones.
Meta Description: Know everything about the IPO bidding process. Get the stepwise process for applying in an IPO.
FAQs
How does bidding for IPO work?
Investors bid within the price band that is decided by the company for the IPO. The bidding price chosen remains the same, irrespective of the number of lots.
Can I withdraw my IPO bid?
Yes, the bid for IPO can be cancelled or re-applied, but only till the time allotment is done. Once allotted the shares, the bid cannot be cancelled.
How many bids can I give in IPO?
An investor can place up to three bids in an IPO. However, each bid needs to be within the price band determined by the company.
What is HNI in IPO?
HNI in IPO stands for the High Net Worth individual category. To apply for IPO as HNI ASBA method is to be used.
What is ASBA in IPO?
ASBA (Application Supported by Blocked Amount) is the IPO application method in which the amount gets blocked by the bank and is debited only if shares are allotted. The amount is unblocked in case no allotment happens.