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3 IPO bidding rules to maximize chances of allotment

Published : August 24, 2017

3 IPO bidding rules to maximize chances of allotment

IPO investment is a good source of earning to the retail investor if selected properly. But even after due consideration of fundamentals and valuation of any IPO and subsequent subscribing, it is not necessary that one get share allotment. Thus, merely subscribing to any public issue does not guarantee for share allotment.

This is a true limitation especially when there is lots of buzz going on any particular issue. So, to enhance the possibility of share allotment, it is always better to keep following rules in mind before bidding to any IPO.

An incomplete or improper filled IPO application is liable for rejection. And even if properly filled the chances of allotment are less for every retail participant. The present article highlights some of the ways to fill an IPO application that increases chances for allotment.

Rule No. 1 – Fill the IPO form correctly

The chances of rejection are high in case if the applications are incomplete or filled with some error. So it is always better to fill the application form with due care. The application must be complete in every sense and no column is to be left blank. Also, every detail needs to be filled accurately in the space provided. The following are checklist to ensure accuracy –

  • Name of the applicant
  • PAN number of the applicant
  • Demat account number of the applicant
  • Bid quantity
  • Bid price
  • Banking branch by giving an instruction to block the amount in their account

Ensure that name of the applicant must be same as that of the attached PAN card copy, Demat and Bank account. Do not forget to ensure PAN number, Demat number, and account number.

Applying IPO through net banking is quite simple then applying through the physical application. Since January 2016, SEBI has made ASBA (Application Supported by Blocked Amount) mandatory for subscribing any IPO. Under this method, the applicant either use net banking facility or his trading member (a broker) or to the SCSB (Self Certified Syndicate Bank).

List of SCSB and their designed branches where ASBA application form can be submitted is available here.  A detailed blog covering, “How to Use ASBA to Apply an IPO” will appear on Raghunandan Money research section very soon.

Rule No. 2 – Always bid on upper band of the IPO

This is the second most important aspect of giving considerable thought to any retail investor. All IPO comes with a price band for the subscription. The lower price band and the upper price band.

Most of the investor does a mistake for subscribing at the lower band, thinking that they will save some money while doing so. However, they forgot that company allows shares over and above cut off-price.

The cutoff price is mostly near upper band. You can check for cutoff price and price band for any issue here. This link will work only when the issue remains open for subscription.

So it is always good to bid at the upper band of the issue as even if cut off come below the upper band, then also chances for getting allotment remains high because of the fact that you had subscribed above the cutoff.

Alternatively, retail investors can tick the cut-off option which indicates their willingness to subscribe to shares at any price discovered within the price band. The retail investor has permission to subscribe the IPO at the cutoff rate.

Rule No. 3 – Consider IPO bid quantity properly

SEBI allows maximum 5 application to any IPO from a single bank account to a retail investor. Also, a retail investor can bid for shares worth a maximum of Rs.2 lac in any IPO. And this is the third very important thing is to consider by any retail investors, i.e. the number of bids.

It is always advisable to subscribe in minimum lot size but the number of application should be on higher side, i.e. 5 application per bank account. Apply in the name of your family members in such a way that lot size remain minimum but application becomes five or around it. And it is also to be ensured that the total application value is within the prescribed limit of Rs.2 lac per account.

There is the draw of lots for allotment to retail investors in case any issue is subscribed multiple times.

And the lucky investors get a bid of minimum one lot. Hence, if you have applied for an IPO at the higher price or at cut-off price in smaller bid lots (say 5 applications per bank account) chances for you getting shares in the draw are better than that if you had applied for only one application.


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