What is IPO…? Initial Public Offer IPO or Initial Public Offer is a way for a company to raise money from investors for its future projects and get listed to Stock Exchange
Types of Market Primary market Primary market is the market where shares are offered to investors by the issuer company to raise their capital. Secondary market Secondary market is the market where stocks are traded after they are initially offered to the investor in primary market (IPO's etc.) and get listed to stock exchange. Secondary market comprises of equity markets and the debt markets.
Who can apply for IPO Retail Individual Investor (RII) In retail individual investor category, investors can not apply for more then Rs Two lakh (Rs 2,00,000) in an IPO. Retail Individual investors have an allocation of 35% of shares of the total issue size in Book Build IPO's. NRI's who apply with less then Rs 2,00,000 /- are also considered as RII category. High Networth Individual (HNI) If retail investor applies more than Rs 2,00,000 /- of shares in an IPO, they are considered as HNI.
Individual investors, NRI's, companies, trusts etc who bid for more then Rs 2 lakhs are known as Non-institutional bidders. They need not to register with SEBI like RII's. Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPO's. Non – institutional bidders
Financial Institutions, Banks, FII's and Mutual Funds who are registered with SEBI are called QIB's. They usually apply in very high quantities. QIBs are mostly representatives of small investors who invest through mutual funds, ULIP schemes of insurance companies and pension schemes. QIB's have an allocation of 50% of shares of the total issue size in Book Build IPO's. In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35:15: 50 respectively. QIB's are prohibited by SEBI guidelines to withdraw their bids after the close of the IPOs. Retail and non-institutional bidders are permitted to withdraw their bids until the day of allotment. QIB's are prohibited by SEBI guidelines to withdraw their bids after the close of the IPOs. Retail and non-institutional bidders are permitted to withdraw their bids until the day of allotment. Qualified Institutional Bidders (QIB's)
Advantage NIB: Non institutional bidder can apply for more then Rs 2 Lakhs and may get much better allocation then a retail bidder. Disadvantage NIB: Disadvantage NIB: Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPO's, while retail Individual investors has 35% (remaining 50% is for QIB's). As Non- institutional category has much smaller in size, issue usually oversubscribed much higher (then in retail category) and less shares allocation.
Mandatory to have PAN number to apply in an IPO Since July 2006, SEBI made PAN number mandatory for IPO applicants. Forms submitted without PAN number or wrong PAN numbers are considered as faulty application and they are not considered for IPO allotment. It's highly recommended that you double check your PAN number information before submitting the IPO application form. If you are filling the IPO application through online stock broker, make sure he has correct information.
Issue open As per Clause 8.8.1, Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. In case of Book built issues, the minimum and maximum period for which bidding will be open is 3 - 7 working days extendable by 3 days in case of a revision in the price band. The public issue made by an infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21 working days. As per clause 8.8.2., Rights issues shall be kept open for at least 30 days and not more than 60 days.
This is a very important information for all IPO investors. If you are applying for an IPO, make sure you retain following information for future correspondence with the company or registrar of the issue. Application form photo copy Cheque photo copy Application number in case of online IPO submission Important points to remember:
'Market Lot Size' and 'Minimum Order Quantity IPO 'Market Lot' and 'Minimum Order Quantity' are two important factors investor should know while bidding for an IPO. Minimum Order Quantity, as name says, is the minimum number of shares investor can apply while bidding in an IPO. If investor wants to bid for more shares, they can apply in multiples of IPO market lot (lot Size or IPO bid lot) of shares. Usually (Market Lot * Lower side of the issue price) values around Rs 5500/- to Rs 6000/-. Example: IPO: Power Grid Corporation of India Limited IPO Public Issue Price: Rs. 44/- to Rs. 52/- Per Equity Share Market Lot: 125 Shares Minimum Order Quantity: 125 Shares Investor can apply in this IPO as below: At Rs 44/- * 125 Shares * 1 Lot = Rs 5500/- At Rs 44/- * 125 Shares * 2 Lot = Rs 11000/- At Rs 44/- * 125 Shares * 18 Lot = Rs 99000/-
Book Building IPO remains open for 3 to 7 days and may extend for another 3 days in case of revision in price if issue remain unsubscribe in initially decided days. Number of days issue remain open is decided by the issuer company and its issue lead manager.
Where do I get an IPO application form? Investor can get the IPO Application Forms from: Nearest Stock broker office (MSTL) or From the syndicate member office of an IPO. Syndicate members are usually banks or other financial institutions (i.e. Kotak). List of syndicate members of an IPO are published in IPO Prospectus. IPO application forms are available for free. Filled application can be submitted to any stock broker office or syndicate member office.
Tips to choose right IPO for investment. 1. The issue size has to be big, the bigger the issue, the higher is the capability of the promoters. 2. Money begets more money, so if they have raised more money, be sure, they will be able to earn more. 3. A higher promoters stake is a must, instills a sense of responsibility. 4. A background check on the promoters capabilities 5. Size of projects in the pipeline, will indicate the scalability of the company 6. Last but not the least, in big companies, look for long term wealth creation and not speculative gains.
Please remember these things: All Out Station applications should be attached with an At Par Cheque or a Demand Draft payable at Ernakulam only… Fund transfer facility will be available for all existing customers of Muthoot Securities Ltd. Fund transfer request letter is mandatory for availing fund transfer facility. Fund transfer request letters should reach HO before 12pm of IPO closing date Improper and incomplete application will be rejected. Pancard copy should be attached with all IPO applications Mention the PAN number and DP id correctly in all IPO forms (and the same should be readable)in the IPO forms Customer name and application number should be written on the back side of the cheque/DD. Application forms should be send to HO in a separate envelope addressed to IPO dept. Out Station Branches/Franchisees should not accept IPO forms on the last day of Issue Closing( 1 st December 2010) Branches must confirm the delivery of IPO forms before 12pm on the Issue closing date. The Cheque or Demand Draft should be drawn in favour of : In case of Resident Retail and Non – Institutional Bidders: Eg: Escrow Account- MFL- R Eg: Escrow Account- MFL- R