How to increase IPO allotment chances? this is the most asked question from IPO investors these days. because these days IPO market is getting crowded. many new investors are showing interest in the IPO market. so in this post, we will discuss the methods to increase IPO allotment chances.
Also read: IPO List 2021: a complete list of IPOs in 2021
Understanding the process first
Prior to October 2012. SEBI and registrars allot shares in the retail category on a corresponding basis in the case of the IPO oversubscription condition. This means that an investor making an application of ₹100,000 or more will get more shares than an investor making a bid of ₹15,000. In undersubscribed IPOs ie, the demand of the share is equal to or less than the shares available, it works fine. However, this process naturally helps big applications when the demand exceeds. Many high-net-worth individual investors pumped their money into the retail category. Naturally, it makes a headache for SEBI.
As a result, SEBI introduce a new IPO allotment process in October 2012. in this allotment process, all the retail individual investor applications are treating equally. in this new system, applicants will get at least the minimum application quantity. subject to the availability of total shares. note that, if the IPO is undersubscribe, ie if the demand is less than the number of shares available in the retail category, all applicants will get full allotment.
In the case of oversubscription, ie, demand will be higher than the availability of the total number of shares, the maximum number of investors who can be allotted the minimum bid lot will be calculated by dividing the total number of equity shares available for allotment to the category by the minimum bid lot. as per the present guidelines, no allotment is less than the minimum bid lot size.
Also read: Security and Exchange Board Of India-SEBI
6 Tips to Increase IPO Allotment Chances?
Now that we understand the logic behind the IPO allotment process, now we can think about how to increase the chances of getting allotments in an IPO. one thing to note is, there is not much that investors can do if the IPO is too much in demand.
Here are 6 easy and simple ways to boost your IPO allotment chances. also, keep in mind that there is no way to get a confirmed IPO allotment, these following steps will be useful for an IPO investor to make his/her allotment chances higher.
1. Use Multiple Demat Accounts
As we know Big applications are Not effective, the investor can go for multiple applications from different Demat accounts. Probability of getting allotment increases to Five times when the investor goes for Five applications of single lots than making one application of Five lots.
An important thing to keep in mind is that these different Demat accounts should link to different PAN accounts. In other words, you cannot make more than one application your own name. which means there is no use in applying the IPO from your own Demat account with a different broker.
Opening a Demat account in the name of family members with their permission is a cool method. you can apply for any upcoming IPO from these accounts. it will increase your chances for allotment. Opening new Demat accounts is an easy and simple thing nowadays. and several brokers provide Demat and trading accounts for free.
2. Bid At Cut-off Price
This is a part of the IPO where investors are often confused between price bids and cut-off bids. By selecting a specific price, the investor is telling the registrar that s/he is looking to buy shares at that price. and the cut-off price conveys that the IPO applicant is flexible to buy at any price within the price band of the Issue. This cut-off price is calculating by the point of maximum demand.
For example, in a price band of ₹500-₹510 per share, no bids below ₹510 per share will be considering for the allotment, if the cut-off price is set at ₹510 per share. so placing your bids at the maximum price or the cut-off price of the price band will increase the IPO allotment chances.
3. Avoid Last-Minute Rush
The majority of the IPO investors rely on the subscription status of the NII and QIB categories before placing their bids on the last day. This is a brilliant way to identify the demand if the IPO in the market. because the subscription status in NII and QIB is very important. if the IPO is good and in demand. the Non-Institutional Investors and Qualified Institutional Buyers will show more interest in the particular IPO. so if the IPO is good, it can be seen in the subscription status of the NII and QIB. because of this reason, people are relying on the NII, QIB subscription status.
As we mention, this is a brilliant idea to get an idea about the IPO demand. but if there are any unexpect technical errors, errors from the bank side, internet connections error on that last day of subscription it could be very difficult. Of course, there is always the option of physical application, this is hardly an effective solution at the last moment. Even if the investor manages to fill the physical form, it may be too late. Several banks are not accepting physical applications after 4 PM on the last day of the IPO.
4. Avoid Technical Rejections
IPO applications may get rejected because of technical errors. the investor will not get any information about these errors. from January 2016, ASBA (Application Support by Blocked Amount) mechanism is mandatory for applying the IPO. and in this modern era of technology, brokers are making the IPO application simpler. now investors can make IPO applications through the UPI method also.
Applying IPO through internet banking will minimize the possibility of errors. but still, there are chances for technical errors also errors like name mismatch in PAN, etc. so make sure that the KYC is correct and update perfectly. also check your IPO status after applying to see the current status, if there are any errors u can see in your IPO status.
5. Buy Parent Company Shares
Holding the parent companies shares is another method to improve the chance of getting an allotment. holding at least one share of the parent company will make the investor eligible for applying for the IPO in the shareholder category. let take an example, if you are going to apply for HDB Financial Services IPO. you will have more chance of getting an allotment if you are holding HDFC shares.
The most important thing to be noted here is, the shares of the parent company must be in the applicant’s Demat account as of the date of Red Herring Prospectus.
6. Avoid Big Applications
As per SEBIs current allotment process, it is treating all the retail applications equally. This means that there is no advantage of making a big application in case of oversubscription. there is no special consideration if your application lot size and amount are higher than other applicants. Big applications will only give chance in large IPOs where there is a reasonable chance of the retail segment remaining undersubscribed.
Final Thoughts
How to increase IPO allotment chances? this is the most asking question from IPO investors these days. because these days IPO market is getting busy. many new investors are showing interest in the IPO market. so in this post, we discuss six methods to increase IPO allotment chances. when you apply for an IPO next time, keep these 6 points in your mind. I hope this post will give you enough idea about How to increase IPO allotment chances.
Happy Investing