How to Increase Chances of IPO Allotment: A Comprehensive Guide
Investing in an Initial Public Offering (IPO) can be an exciting opportunity, especially when the IPO is oversubscribed and promises substantial returns. However, the higher the demand for an IPO, the harder it becomes to secure an allotment. If you’ve ever applied for shares in an IPO and ended up with none, you’re not alone. In this article, we’ll explore practical strategies to improve your chances of getting an IPO allotment.
Understanding the IPO Allotment Process
In India, IPO allotment is governed by the Securities and Exchange Board of India (SEBI). For retail investors, the allotment is typically done via a lottery system when an IPO is oversubscribed. Here’s how it works:
- Application in Lots: Shares are issued in predefined lots, and retail investors can apply for one or more lots.
- Proportionate Allocation: In case of oversubscription, shares are allotted randomly through a computerized lottery system to ensure fairness.
- Maximum Cap: Retail investors can apply for up to ₹2,00,000 worth of shares.
Tips to Increase Your Chances of IPO Allotment
1. Apply Through Multiple Demat Accounts
- Why It Works: SEBI’s lottery system treats each application as a separate entity. By applying through different Demat accounts, your chances of being picked in the lottery increase.
- How to Do It: Open multiple Demat accounts in the names of family members (spouse, parents, or siblings). Ensure that each account has a unique PAN card linked to it.
2. Avoid Large Applications
- Why It Works: In the case of oversubscription, smaller applications (for a single lot) have higher chances of being allotted shares compared to larger applications.
- How to Do It: Instead of applying for multiple lots under a single application, submit multiple single-lot applications through different accounts.
3. Apply Early in the IPO Window
- Why It Works: Although the IPO allotment isn’t based on timing, applying early ensures that your application is successfully processed without technical glitches.
- How to Do It: Submit your application on the first or second day of the IPO subscription period to avoid last-minute issues.
4. Avoid Common Mistakes
- Why It Works: Errors in the application process can lead to rejection. Ensuring accuracy minimizes the risk of disqualification.
- How to Do It: Double-check the following:
- Correct Demat account number.
- Unique PAN card linked to each application.
- Sufficient funds in your bank account.
5. Use ASBA for Application
- Why It Works: Application Supported by Blocked Amount (ASBA) is a safer and SEBI-approved method to apply for IPOs. It ensures that your funds are only blocked, not debited, until allotment is finalized.
- How to Do It: Most banks provide ASBA services. Apply directly through your bank’s net banking portal or mobile app.
6. Check Subscription Data Regularly
- Why It Works: Monitoring subscription data helps you understand the demand for the IPO in real-time. This insight can guide your application strategy.
- How to Do It: Check subscription details on the stock exchange website (NSE or BSE). If the retail category is highly oversubscribed, applying for fewer lots can increase your chances.
7. Target Non-Popular IPOs
- Why It Works: IPOs of lesser-known companies are often undersubscribed, increasing your chances of allotment.
- How to Do It: Research smaller or SME IPOs that show growth potential but don’t attract widespread attention.
8. Maintain a Good Bank Balance
- Why It Works: If your bank rejects your application due to insufficient funds, your IPO application is invalid.
- How to Do It: Ensure you have enough balance in your bank account before applying to cover the full application amount.
9. Use Multiple Bank Accounts for ASBA
- Why It Works: Different banks may have varying technical capabilities and efficiency in processing IPO applications. Diversifying can minimize the risk of technical rejection.
- How to Do It: Apply through multiple banks with ASBA-enabled accounts.
10. Apply in the Shareholder Category (if Eligible)
- Why It Works: Some companies reserve a portion of shares for existing shareholders. This gives shareholders a higher chance of allotment.
- How to Do It: If you already hold shares of the parent or holding company, apply under the shareholder quota for additional allotment opportunities.
Common Reasons for IPO Application Rejections
- PAN Mismatch: Ensure that the PAN linked to your Demat account matches the PAN provided in the application.
- Insufficient Funds: Always maintain the required amount in your bank account until the allotment process is completed.
- Duplicate Applications: Submitting multiple applications under the same PAN can lead to rejection.
The Role of Luck in IPO Allotment
Despite following all the best practices, it’s important to understand that luck plays a significant role in IPO allotment, especially when demand far exceeds supply. For highly oversubscribed IPOs, the lottery system becomes the deciding factor.
Conclusion
While there’s no guaranteed way to secure an IPO allotment, employing the strategies outlined above can significantly improve your chances. From applying through multiple accounts to avoiding common mistakes, each step increases your odds in the competitive world of IPO investments. Ultimately, patience, persistence, and a well-thought-out approach are key to making the most of IPO opportunities. Happy investing!