An IPO is often a much-awaited opportunity that attracts a lot of investor attention due to the potential advantages it presents. However, because of the overwhelming demand for shares during initial public offerings, many investors face difficulties in securing an allotment. This leads them to explore various methods to boost their chances of getting selected.
The best approach is to gain a clear understanding of the key factors that influence the IPO allotment process and apply practical strategies to improve the odds of success.
Ways to Improve Your Chances for IPO Allotment
Before applying for an IPO, there are certain aspects you should carefully consider. Following these recommended steps can help improve your chances of receiving an allotment, especially in cases where the IPO is oversubscribed.
1. Apply from Multiple Accounts for the Same IPO
Avoid placing your entire bid through a single account. Instead, apply through multiple demat accounts to increase your chances in an oversubscribed IPO. For instance, if an IPO is subscribed six times and you submit applications through six different accounts, you stand a higher chance of getting at least one allotment.
Ensuring that your applications are properly aligned across accounts improves the likelihood of success. Using multiple accounts becomes especially helpful for IPOs with high oversubscription and strong expected listing gains.
2. Opt for Minimum Bids, Avoid Large Applications
According to SEBI guidelines, retail investors are allotted a minimum number of shares across all bid levels, whether it’s the lowest or highest. Therefore, it’s advisable to stick to the minimum bid amount. In the case of oversubscribed IPOs, applying with the minimum bid through multiple accounts can significantly increase your chances of allotment. This approach also allows you to distribute your investment across various IPOs, making better use of your available funds.
3. Use Different Application Numbers While Applying
When applying for IPOs with expected high retail subscriptions, it’s wise to use varied application numbers across multiple accounts. Avoid submitting applications with consecutive or closely grouped numbers, as this may reduce your chances during the allotment lottery. For instance, if an IPO is subscribed over 20 times and you’ve applied through 6 different accounts, ensure that each application has a distinct number. This strategy can improve your odds of receiving an allotment when shares are distributed through a lottery system.
4. Choose the Cut-off Price or Higher Price Band
When applying for an IPO, it’s important to note that investors who apply with the higher price band, also known as the cut-off price, tend to have a better chance of getting an allotment. To maximize your chances in case of oversubscription, it is advisable to apply at the cut-off price for the IPOs you are interested in. This strategy can increase your likelihood of securing an allotment, especially when demand is high.
5. Do Not Apply at the Last Minute
If you plan to apply for an IPO, it’s best to do so on the first or second day of the subscription period. Waiting until the last day may lead to complications, such as your bank account not responding due to high subscription volumes from HNI and QIB investors. To ensure you don’t miss out on promising IPOs, it’s important to apply early in the subscription window.
6. Complete the Form Carefully
Take your time when filling out the IPO application form. Ensure that all details, such as the amount, name, DP ID, bank information, and other necessary fields, are accurately provided. Printed forms are also available and can be a more secure method to apply. If you opt for ASBA (Applications Supported by Blocked Amount) through your bank, double-check the information before submitting. This will help you avoid any potential technical rejections.
FAQs
Why to apply for just one lot in an IPO?
Applying for a single lot is often advised because IPO allotments are generally designed to benefit smaller retail investors. A specific portion of the shares is reserved for this group, making it more likely for those who apply for a single lot to receive an allotment, as this aligns with the allotment structure intended for retail investors.
Is it allowed to use multiple demat accounts for IPO applications?
Yes, using multiple demat accounts for IPO applications is legal. Although regulations prevent an individual from making more than one application from a single demat account, having multiple accounts enables you to submit several applications, which can increase your chances of receiving an allotment.
How can owning shares in the parent company increase IPO allotment chances?
Certain companies give preference to existing shareholders during IPO allotment, recognizing their loyalty and long-term investment. However, it’s important to review the IPO prospectus to understand the specific criteria for receiving such preferential allotment.
Conclusion
Securing an allotment in the highly competitive IPO market requires a strategic and informed approach. To increase your chances, consider applying for individual lots, using multiple demat accounts, and bidding at the cut-off price. Additionally, owning shares in the parent company may make you eligible for preferential allotment.
