If you are a retail investor and thinking nowadays about IPO allotments and you have these questions running in your mind.
- Why I never get an IPO allotment?
- Why is IPO not allotted to me? What am I doing wrong?
- What are the reasons for not getting an allotment?
- How to get an IPO allotment for sure?
Then you are reading the right article.
The above questions are the most common questions asked by investors nowadays as recently many IPOs were attractive and got oversubscribed which led to no allotments for investors. Whether you are a newbie in the stock market or you have years of experience, IPO allotment has made investors confused and left them clueless about the allotment process.
We will be discussing all the doubts regarding IPO allotment and also I will be sharing some tips and tricks on how you can increase IPO allotment chances in 2021?
Let’s start with the basics…
Understanding the process of IPO allotment
Earlier getting an IPO allotment was based on more the number of lots you apply, more are the chances to get the shares allotted in your Demat account. HNI investors used to take benefit of this system as they could apply from the Retail category as well as HNI category.
But after October 2012 according to SEBI, every application in a retail category is treated equally. Now as per the current guidelines it doesn’t matter if you apply for one lot (Rs.15,000) or for 10 lots (Rs. 1,50,000) you will be treated equally and the shares will be allotted as per the subscription. It is completely decided on a lottery basis and the process is computerized.
There are 2 possibilities every time when IPO is announced.
When the demand for an IPO subscription is less than the no. of shares the company is offering then an IPO is said to be undersubscribed. For example, If company A is offering shares worth Rs. 5,00,000 but the company receives a bid for the shares worth Rs. 3,00,000 which is less than what the company is offering.
In this condition, every investor gets an allotment of shares according to the number of lots they had applied for.
When the demand for an IPO subscription is more than the no. of shares the company is offering then an IPO is said to be oversubscribed. For example, If company B is offering shares worth Rs. 5,00,000 but the company receives a bid for the shares worth Rs. 8,00,000 which is more than what the company is offering.
In this condition, the allotment of share is done on a lottery basis if you are lucky enough you will get the allotment. So to increase allotment chances of retail investors let’s see tips and tricks.
How to get an IPO allotment for sure?
Now as we know the IPO allotment process completely let’s see how can we increase IPO allotment chances for retail investors. As one can see that it’s not completely in the hands of investors but here are some ways to increase the IPO allotment chances.
Don’t apply for more than 1 lot
As per recent guidelines SEBI treats each and every application equally whether it is of Rs.1,00,000 or Rs.15,000. The chances of getting an allotment are the same for both the investors if the IPO is oversubscribed. Applying for more than 1 lot makes sense only when the IPO is undersubscribed or the retail portion for the IPO is too big. This will surely save your money so that you can apply for different IPOs and increase IPO allotment chances.
Apply through multiple Demat accounts
The probability of getting an IPO allotment increases four times as you apply through four different Demat accounts rather than applying four lots from one Demat account. But you need to be careful here because you can fill only one application through one name so the multiple Demat accounts you will be using should be linked with the different PAN accounts. This is one of the most sure-shot ways to increase IPO allotment chances.
Practically this can be done by opening a Demat account of each member in the family or friends and apply one lot from each Demat account. Nowadays due to digitalization opening a Demat account is a hassle-free process.
Always go with a cut-off price in the application form
If the IPO announced has a price band of Rs.150 -.155 per share then as a retail investor you should always go with the maximum price or cutoff price. If you are bidding for a price less than Rs.155 then this indicates to the registrar that he/she is interested in buying at mentioned price and if you are biding at the cutoff price then that indicates he/she is comfortable buying at any given price between Rs.150 -.155.
Therefore always go with a cut-off price while filing the application form.
Try to avoid last moment rush
As an investor, you should always look at the subscription numbers for NII, HNI, and retail category as it gives insight into the demand for the IPO in the market. But sometimes there can be problems related to net banking, server issues at the bank’s site, internet connection, and many more. So in this case you can miss out on the opportunity to apply for the IPO on the last day.
Yes, you can go by filing the physical form but there are different timings of different banks to accept the application form on the last day. Most of the banks stop taking applications after 2 pm.
While applying for an IPO there can be problems with spelling mistakes or different names at your bank account or PAN and this can reject your application form on technical grounds without knowing. From 1 January 2016, all the applications are applied through ASBA (Application Supported by Block Amount) which is there in most of the banks. Most of the investors apply through net banking or UPI to avoid such technical rejections.
Buying a share of the parent company (Bonus Tip)
If you have a minimum of one share of the parent company in your Demat account then you can apply for the IPO through the shareholder category. Of course in this case the IPO announced should have the parent company listed on NSE and BSE.
In a recent case of Ujjivan Bank IPO, the retail category was subscribed up to 48 times and the shareholder category was subscribed 4 times. So if you applied through the shareholder category there will be more chances of getting an allotment in this case.
The next opportunity is in the upcoming IPO of Jio as it is the subsidiary of Reliance Industries Limited which is already listed on NSE and BSE.
As an investor, we don’t have full control over the IPO allotment but we can surely follow these 6 tips to increase the chances of getting an IPO allotment.
If you have any doubt regarding these allotment tips please comment below and we will be happy to help you with it.