How to increase IPO allotment chances?
These days, getting an IPO allotment is more difficult, like, winning a lottery. Every retail individual investor (RII) is trying his/her best to get at least one lot of the IPO issue. Still, not everyone is getting the allotments.
In the history of India, 2021 has been the year of Initial Public Offerings (IPOs) and many seasoned investors are criticizing that they are not getting any IPO allotments due to over-subscriptions in every IPO.
In this case, how to increase chances of getting an IPO allotment?
In this article, we will see some tips to increase that luck.
Getting an IPO allotment cannot be confirmed if over-subscribed, it is all luck, that your application accepted or rejected, all you can do is increase the chances that your application gets selected from this random process.
How shares are allotted in IPO?
The registrar (who is monitors by stock exchanges and SEBI) is responsible for allotment of shares to investors in an IPO, process refund, and transfer allocated shares to investors Demat account.
The allotment rule says all the retail individual investor (RII) applications to be treated equally.
The minimum bid lot is defined based on the minimum application amount, which cannot exceed Rs. 15,000 and fall below Rs. 10,000. Now, here are two cases:
- IPO under-subscribed: In this case, every retail investor will get whatever lots they have applied for.
- IPO over-subscribed: In this case, a retail investor will either receive a single lot or nothing.
You can read subscription status of an IPO in business news websites.
Plan your investments according to the subscription status of an IPO.
How to increase IPO allotment chances?
1. No benefit for big application.
For the retail category, there are no benefit for big applications.
Either you subscribe one lot or multiple, you are treated just as a retail investor. So, there is no additional benefit of buying more lots, if you think buying multiple lots will increase your chance.
2. Bid at cut-off price.
One should always bid at the cut-off price, which is the highest price band available in the application. This simple means investor is ready to pay whatever amount is decided by the company while allocation.
3. Apply from multiple Demat account.
You can increase the chance of getting an IPO allotment by becoming more probable to the subscription status. One should apply for the IPO through multiple Demat accounts for highly subscribed IPOs. Applying through multiple accounts will increase the chances of getting an IPO allotment.
Make a note here that all the Demat account shouldn’t be yours, if you apply from multiple accounts of yours then all the applications will get rejected. Here you can make multiple Demat accounts of family members like dad, mom, brother, sister, husband or wife, daughter, son, etc.
All you need to confirm that every account has different PAN.
4. Avoid last moment rush.
Last moment subscription is the biggest mistake most individuals do.
Once you made a mind to invest in an IPO, do it in the initial days, which is day one or two.
Third day is the last day, although nothing goes wrong if every single thing is correct, but you cannot predict the downtimes or errors. If anything goes wrong in the last day, you’ll miss the application and there will be no further chance to reapply the application after market closes.
Thus, avoid last moment rush.
5. Buy parent company shares (if there).
If a company is issuing an IPO for its child or sister company, the prices do increase for its parent company. So you can invest in the main company itself if you miss the IPO opportunity.
6. Check the subscription status.
Checking subscription status will help you decide your investments.
Before applying for a bid, check for the subscription levels on the 1st and 2nd day in High Net-worth Individual (HNI), Qualified Institutional Bidders (QIB), and Retail Individual Investor (RII) categories.
Apply when there is a good response.
If the issue size is large and the under-subscribed, you can simply avoid or apply for the large quantity if you think it is a beneficial IPO that has realistic fundamentals.
If the issue is over-subscribed, then check whether you have to apply for it (only for single lot) or you can directly buy it from the open market (stock market) when the issue is listed for trade.
This is it, you can follow above tricks to increase chances of getting an IPO allotment.