This year, one of my favorite meme sections to browse is ones regarding initial public offerings (IPOs). Perhaps it’s a coping strategy for all the IPOs I’ve lost out on due to a lack of allotment.
This year alone, there have been over 40 investment-worthy IPOs. Despite this, we’ve received a flood of complaints and demands from investors requesting us to publish IPO allotment tactics or tricks on our website and Instagram.
As a result, we’ve chosen to produce this post about how to improve your chances of receiving an IPO allotment. Here are some tips that, although not a guarantee of getting an allotment, will definitely boost your chances of getting one. Continue reading to learn more!
Before we get into the best tips for increasing your chances of getting an IPO allotment, let’s take a look at how the allotment process works. But why is that? Even though I am familiar with the tactics listed below, I occasionally miss out on IPOs.
Understanding how the allotment works, on the other hand, helps me cope with the missed chance. SEBI implemented a new allotment method in 2012 after identifying various inconsistencies in the process. All Retail Individual Investors (RII) are to be treated similarly under this rule.
The number of investors who have subscribed to an IPO, or the number of applicants who have applied for an IPO, determines the allotment in an Initial Public Offering (IPO). There are two possible outcomes here. The IPO is oversubscribed, which means that the number of investors that applied for the IPO outnumbers the number of shares available. Another result is that the initial public offering (IPO) is undersubscribed. The number of investors that subscribed to and purchased shares in the IPO is lower than the number of shares issued by the company.
If the IPO is undersubscribed, every investor who applied for an allotment will receive one. When an IPO is oversubscribed, shares are distributed by dividing the total number of shares available to retail investors by the minimum bid lot.
Maximum RII Allottees = (Total number of shares available for RIIs) / Minimum bid lot
Retail investors will either receive one lot or nothing. A lottery technique is used to pick the investors who would receive one lot. This would explain why we don’t get allotments for oversubscribed IPOs every time we apply.
How Can You Increase Your IPO Allotment Chances?
Let’s look at some simple improvements we may make to our application process to boost our chances of receiving an IPO allotment.
1. Do not apply for large sums of money.
This section is mostly devoted to debunking a myth. Many investors believe that the more lots they buy in an Initial Public Offering (IPO) that goes up to Rs. 2 lacs, the better their prospects are. As we’ve seen, all retail investors receive the same treatment. As a result, investing a significant sum does not improve your odds. What should you do, though, if you only have Rs. 2 lac and yet desire an allotment?
2. Use multiple DEMAT accounts to apply
As we’ve seen, applying for numerous lots through one isn’t a good way to improve your chances. Instead, one can apply for a single lot using numerous Demat accounts. Assume you apply using five Demat accounts. This raises your chances of getting an allotment by five times.
However, it is important to avoid applying with DEMAT accounts that have the same PAN card number. If this is done, all of one’s applications from various accounts will be refused.
Applying through DEMAT accounts with a different PAN number is a better option. This can be accomplished by logging into the accounts of family and friends. On the other hand, investors must be mindful of receiving multiple allotments. Because the method is based on a lottery.
3. Bid at the Cut-off Price every time.
After agreeing to apply for an IPO, an investor must then determine how much he is willing to spend for the company. This is why corporations publish a price range in which investors can place bids. Take the price range of Rs. 200-210, for example.
Only bids at the maximum price or the cut-off price are considered when an IPO is oversubscribed. Investors who bid for less than this amount are turned down. In the case above, the investor must apply at Rs. 210 in order to avoid getting denied. As a result, investors should always apply at the cut-off price in order to enhance their chances of receiving an IPO allotment.
This method is only relevant to IPOs with a publicly-traded parent company. When it comes to IPOs, the shareholder group is open to investors that own at least one share of the parent firm. But how is this advantageous?
In most IPOs, the retail portion is oversubscribed by a factor of ten. The number of subscribers in the shareholder category, on the other hand, is significantly lower. An investor’s chances of securing an allotment improve as a result of this.
5. Double-check that all of the information is correct.
Application faults are one of the most common but also one of the easiest to avoid mistakes. Simple errors like spelling issues, inconsistencies between applicants’ names and names on PAN cards, and erroneous check details might result in an application being refused. Using ASBA is one of the most effective strategies to avoid this (Application Supported by Blocked Amount).
In conclusion :-
These are some of the most effective tactics we’ve utilized to not just avoid the common IPO rejection, but also to boost our chances of getting an allocation. Let us know what you think in the comments section below. Good luck with your investments!
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