How to get success in IPO segment of investment

by khalid on 26/12/2010 · 0 comments

These days in Indian share market IPO segment of investment is very hot. Almost all the companies thinking to generate money from primary market for their various needs. As the share market is nearing its peak, retail investors are participating in IPOs in full swing. But due to minor mistakes of retail investors, they miss out on the IPOs allotment. We should keep in mind certain points when applying for an IPO, which i am giving below……

1. Be alert about the news regarding current IPOs and upcoming IPOs. Many investors miss out big opportunities due to some other business and day jobs. Many of my friends missed out on great IPOs just because they were too busy. If you don’t want to mis the chance so visit my blog BelltheBull frequently for IPO updates.

2. Once you have decided about the IPO that you want to invest, study the details about the company on blogs, expert reviews. Find about the issue size, opening date, closing date, any retail discounts if available and so on. Then go on and read about the company, it’s history and how is the issue priced. Is it too expensive, is it too cheap. If it is too expensive, then why is it so, is it because the company has grown at a very fast pace. Or if it is very cheap, are there some hidden bad secrets about the company that you don’t know and so on. I think if you are investing a good amount of money, then the IPO deserves some research from your side. After all, it is your hard earned money.

3. Once decided on Investing, Decide on Amount – Once you have decided that the IPO is good enough then go ahead and decide on the amount. At this point people generally do a mistake. They wipe out their portfolio sell all their major stocks just to get a pie of their newly analyzed IPO. This is not a good thing to do. First thing, you are breaking a major rule of investment, that is Diversification. What would happen if due to sudden bad market conditions the whole market is in a sell off mode and your IPO lists at a loss. Then you would suffer a good amount of loss. So the amount should not be obtained by selling your performers. You can occasionally cut back your loser stocks (the companies which are not so good) and use that money for subscribing your IPO.

4. Do not subscribe till the last day – Let me explain this by an example. Suppose an IPO of Punjab And Sind Bank has opened on 13th Dec, 2010 and it closes on 16th Dec 2010. Then please wait till 16th Morning. At that point of time check for the subscription numbers overall as well as for retail investors. Say, at that time the retail portion was subscribed 3 times. Then it is safe to assume that by the end of the day the subscription will be 6 times or more. So you need to apply for at least 6 lots if you want to get even a single lot.

5. Subscribe at the Higher End of Price Range. Suppose Punjab and Sind Bank IPO has opened for subscription and is offered in a price band of Rs 113 to 120, then you must subscribe at the higher end price, that is Rs 120. You would be wondering what would happen if you apply at a lower price say Rs 115 or 113. As a retail investor you are allowed to subscribe at any lower price, but if the issue is oversubscribed, you will not get even a single share. This happened with many of my friends and they learned the hard way.

6. Subscribing Price won’t affect your Offer Price – Many retail investors have this doubt that if they subscribe at higher end of price band, will they still be eligible for retail discount ? Yes, they will be.

7. Prefer to Apply Online, when you apply on hard paper, chances of committing mistakes are very high. And the IPO registrar will just be looking for those mistakes so as to rule out your application as invalid.

8. Prefer to Apply through an ASBA enabled Bank Account – When you apply for the IPO through an ASBA enabled bank account, your money does not go anywhere. It just gets locked for a period of 10 to 12 days. Say, suppose you apply for 10 lots of Punjab And Sind Bank IPO, each lot costing you Rs 6,000. So an amount of Rs 60,000 will be locked into your account. Finally when you get 2 lots, then an amount equal to Rs 12000 will be deducted from that account. After a day or two, the money will be unlocked and you can reuse that amount for anything.

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