If you are an early adopter and like to invest in companies that are new to the share markets, an Initial Public Offering is what you should look for. Initial Public Offering is nothing but the first sale of a company's equity to the public.
Companies usually issue Initial Public offering due to the following reasons:
To generate additional capital for funding of projects/expansion plans
To dilute shareholdings of existing promoters/venture capitalists
To enable liquidity for shareholders
To enhance corporate image by increasing visibility
Why should you invest in an IPO?
It provides you with an opportunity to make profits on listing
As price offered during IPOs are often attractive, it makes for a sound investment decision
You get the opportunity to be a part of the growth story of the issuing company
How does an IPO take place?
When a company wants to go public, the first thing it does is hire an investment bank
The company and the investment bank will first meet to negotiate the deal. Subjects usually discussed include the amount of money a company will raise, the type of securities to be issued, and all the details in the underwriting agreement
The underwriter puts together what is known as the RED HERRING.
This is an initial prospectus containing all the information about the company except for the offer price and the effective date, which aren't known at that time.
With the red herring in hand, the underwriter and company attempt to hype and build up interest for the issue. They go on a road show for Foreign Institutional Investor.
In a 'Fixed Price' shares are sold at a single price/fixed price. This price is determined by the company in advance and you (the buyer) can buy the shares only at that decided price.
E.g. If XYZ Industries Limited decides to make a public issue of 10,00,000 equity shares at a price of Rs. 65/- you can buy the share at Rs. 65/- and cannot ask for a price of Rs. 60/-
Book Building Issue
'Book Building' is a price discovery mechanism used to determine the price of the security proposed to be issued. 'Book Building Issue' is generally used when the issuer doesn't want to fix a certain price on the security. Here, unlike the 'Fixed Price Issue', you (the bidder) have the facility to bid for the shares within the given range/price band.
E.g. If XYZ Industries Limited decides to make a public issue of 10,00,000 equity shares, it will, instead of a fixed price, announce the price band of Rs. 60/- to Rs. 70/-. You (the bidder) can then place your bids for the shares between this price band/range.
Types of Applicants
Retail Individual Investor:- means an investor who applies or bids for securities of value not more than Rs. 2,00,000/-
Non-Qualified Institutional Buyer: means an investor who bids for an amount above Rs. 2,00,000/- and does not fall in the QIB category e.g. HNI investors.
Qualified Institutional Buyer(QIB) means:
a. Public financial institution as defined in section 4A of the Companies Act, 1956
b. Scheduled commercial banks
c. Mutual funds/venture funds/insurance companies/provident funds
d. Foreign Institutional Investor registered with SEBI
Ways of Applying for an IPO
You can apply for an IPO through us by using ASBA (APPLICATION SUPPORTED BY BLOCKED AMOUNT) facility or through Non-ASBA route. Regardless of which way you chose to invest, Non-ASBA or with ASBA, for you to invest in IPOs with us, you need to have a demat account with Kotak Securities. If you have not opened it till now, fill in the form on the right and our executives will get in touch with you.
Investing through Non-ASBA
To apply in IPOs without availing ASBA facility, you need to submit with us your application form along with the cheque and a copy of your Pan Card. We will then upload orders placed by you in the exchange and bank the cheque with the concerned bank.
Investing with ASBA (APPLICATION SUPPORTED BY BLOCKED AMOUNT)
With us, you can also avail the facility of Applications Supported by Blocked Amount (ASBA). This facility is provided in association with Kotak Mahindra Bank to apply for Public Issues namely IPOs, FPOs, rights issues & Non-Convertible Debentures (NCDs).
ASBA stands for Application Supported by Blocked Amount. Using ASBA, you can invest in public issues by authorizing the bank to block an amount equivalent to the application amount in the relevant bank account. The application amount is not debited from the account but remains blocked till the completion of allotment process. On allotment, amount required will be debited from the bank account whereas in case of partial or no allotment, the amount unutilized due to non-allotment will be released.
To know the terms and conditions for investing with ASBA click here.