John Johnson
Among the many milestones in an investor’s financial journey, applying for a company’s very first public share sale often stands out as particularly memorable, especially for those doing it for the first time. The process itself has become remarkably streamlined in recent years, with an IPO application now taking only a few minutes to complete through most banking and investment platforms. Central to this entire process is the Demat Account, which serves as the destination for shares once they’re allotted, making it an essential prerequisite for anyone hoping to participate in these offerings. Understanding how this process works, from application through allotment and eventual listing, can help investors approach these opportunities with greater confidence and clarity.
The Application Process Explained Simply
For someone who is not familiar with the process of public offerings, the whole ordeal seems rather intimidating with all the jargon and tight deadlines. However, in practice, it is pretty straightforward. Once the company announces the offering, it is open for a couple of days during which the would-be shareholders can apply. For simplicity, it makes sense to apply via the bank’s net-banking interface (or equivalent) if you are a small-time investor, as most banks have a feature where the money is not immediately transferred to the exchange but rather held at the bank’s end. It is then transferred to the exchange only when shares are allocated and, in case of rejection or partial allotment, it is returned to you. It is a pretty risk-free process without the headaches of the traditional application process. Allotment can be random, but it is usually based on demand and the cut-off price.
First-time applicants need to be aware of some of the most frequent mistakes that can cost them their desired allotment.
Probably the most frequent one is providing incorrect or mismatched personal details on the application form.
A lot of applications get rejected simply for this reason, even though it seems like an obvious thing not to do. If you have a valid address, it should match the one that the bank has on file with you, even if it is not updated. Other things that first-time applicants sometimes tend to do wrong include bidding wrong prices and applying in the last few hours. Though it is assumed that you would apply at the cut-off price, some people mistakenly try to bid lower prices just to economise on the amount fronted without understanding that they will have to face a lot of rejections in the meantime before any shares are allocated to them. It is best to apply early in the window just as soon as you have finished your due diligence on any given stock. Finally, some investors choose a stock purely on the recommendations of friends or family or even their own social media feeds without actually doing any research on the company. This is a bad long-term business practice.
Having said that, I think it is important for you to understand that the allotment is just the beginning of the journey.
Once you apply and get the allocation confirmation (which is usually right before the listing opens), you have to choose between selling the shares right away or waiting to hold on to it for a better price in the future. Both decisions should be informed by your initial reasoning behind the application in the first place. If you still stand by the fundamentals of the company and have done a good job of your due diligence, it might make more sense to actually hold onto the stocks rather than sell them at the very beginning. The same logic should be applied when the listing opens. Similarly, if you feel that something has fundamentally changed about the company since you had initially applied, it would make more sense to sell some or all of your shares.
It is important to keep tabs on the developments of the company to which you have allocated some or all of your shares. Doing so makes good investment sense, especially if you are considering selling the shares after a certain amount of time as a shareholder. The quarterly reports and general news about the company can be useful indicators about the future performance of the stock in the long run. In other words, it is important to be informed without getting sucked in by the hysteria of any given stock. It is crucial to know when to hold and when to sell based on tangible facts about the company rather than the market forces.
Since more and more companies are considering going public every year, the general onus is on the small-time investors like us to take advantage of the opportunities presented to us.
What You Need to Know
- The process of applying for a public offering has been streamlined and can now be completed in a few minutes through banking and investment platforms.
- A Demat Account is essential for anyone wanting to participate in a company’s IPO as it serves as the destination for allotted shares.
- Frequent mistakes by first-time IPO applicants include providing incorrect personal details and bidding lower prices than the cut-off, which can lead to application rejections.
- Once shares are allocated, investors should decide between selling immediately or holding onto the stocks based on their initial research and the company’s performance.
- It is important for investors to stay informed about the company’s developments, as this knowledge can guide decisions on when to sell or hold shares.
- As more companies go public each year, small-time investors have increased opportunities to participate in IPOs.
Joshua Rogers
