Initial Public Offerings (IPOs) can be a great way to invest in new and exciting companies, allowing investors to potentially earn significant returns. However, one of the key challenges many investors face is securing an allotment in an oversubscribed IPO. Given the rising popularity of IPOs in India, understanding how to increase your chances of getting an IPO allotment is essential.
In this article, we’ll dive into strategic ways to improve your chances of securing an IPO allotment. While getting an allotment isn’t always guaranteed, these steps can significantly boost your chances.
What Is IPO Allotment?
When a company goes public, it issues shares to investors through an IPO. Investors apply for shares, but in many cases, demand exceeds supply, leading to an oversubscription. Not every applicant gets shares, and the allotment process can become competitive. Allotment involves distributing shares to investors, typically via a lottery system when there’s high demand.
Read More About What is IPO?
Steps to Increase Chances of IPO Allotment
With this in mind, let’s explore practical steps to increase your chances of securing shares in oversubscribed IPOs.
1. Opt for a Single-Lot Application
One of the easiest strategies to increase your chances of getting an IPO allotment is applying for only one lot. A lot is the minimum number of shares you can apply for in an IPO. In an oversubscribed IPO, where demand is higher than the available shares, SEBI (Securities and Exchange Board of India) ensures that all retail investors stand an equal chance for allotment, regardless of how many lots they apply for, up to ₹2,00,000.
By applying for a single lot, you avoid the risk of rejection due to an oversubscribed issue. The chances of getting shares in an oversubscribed IPO are the same whether you apply for one lot or more, so it’s a smart idea to limit your application to one lot to maximise your chances.
Single-Lot Application:
- Research the Lot Size: Check the IPO prospectus to know the minimum lot size, which can vary depending on the company.
- Monitor Subscription Levels: Monitor subscription levels during the IPO period to understand demand and adjust your application accordingly.
2. Use Multiple Demat Accounts
Another way to improve your chances of securing an IPO allotment is by applying through multiple Demat accounts. Legally, you can apply through multiple accounts belonging to your family or close friends, provided each account has a unique PAN (Permanent Account Number).
This method allows you to submit multiple applications, increasing your chances of getting at least one allotment. However, it’s essential to follow the rules carefully to avoid any technical rejections. Ensure that each application has a different name and PAN to avoid being disqualified.
How to Use Multiple Demat Accounts?
- Open Family Accounts: Encourage family members to open Demat accounts if they don’t already have one.
- Track All Applications: Be vigilant about tracking each application and ensure all information is filled out correctly to avoid rejections.
3. Select the Cut-Off Price
When applying for an IPO, selecting the cut-off price is one of the most effective strategies to increase your chances of allotment. The cut-off price is the final price at which shares are issued to investors, determined after the complete book-building process.
By opting for the cut-off price, you indicate your willingness to buy the shares at the final price set by the company, thus improving your chances of receiving an allotment in highly sought-after IPOs. This is particularly useful in oversubscribed issues, where the final price is usually set at the higher end of the price band.
Why the Cut-Off Price Works:
- Increased Flexibility: By choosing the cut-off price, you signal flexibility in accepting the final price, which can be advantageous in oversubscribed offerings.
- Reduced Risk of Missing Out: It minimises the chance of your application being rejected due to bidding at a lower price.
4. Avoid Last-Minute Applications
A common mistake investors make is waiting until the last day to apply for an IPO. While it might seem convenient, applying at the last minute can lead to issues such as server overloads, technical glitches, or even missing the deadline altogether due to high traffic.
To avoid these problems, it’s a good idea to apply early, preferably on the first or second day of the IPO subscription window. This ensures your application is processed smoothly, without any delays or errors. Early applications also help avoid technical rejections that can occur when demand spikes towards the end of the application period.
How to Apply Early:
- Set Reminders: Mark your calendar with IPO dates and set reminders to apply early.
- Use pre-apply: Utilise the pre-apply feature brokers provide to submit IPO applications early and avoid last-minute technical issues. Ensure your funds are prepared in advance for a smoother application process.
5. Prevent Technical Rejections
Many IPO applications are rejected due to technical errors, such as incorrect details or insufficient funds in the linked bank account. To avoid this, it’s important to double-check all the information in your application before submitting it.
Ensure that your Demat account number, PAN, bank account details, and other personal information are accurate. You should also ensure that the linked bank account has sufficient funds to cover the application amount, as a lack of funds can lead to automatic rejection.
Common Causes of Technical Rejections:
- Multiple Applications from the Same PAN: Only one application is allowed per PAN, so submitting multiple applications from the same account can lead to rejection.
- Incorrect or Incomplete Information: Double-check all details to ensure accuracy.
- Insufficient Funds: Ensure the linked bank account has enough funds to cover the application amount.
6. Invest in Shares of the Parent Company
Sometimes, investing in the parent company of an IPO can increase your chances of being allotted to its subsidiaries’ IPOs. While this isn’t a guaranteed method, companies often favour existing shareholders in their allotment process as a way of rewarding loyalty.
Some companies even set aside a certain percentage of shares for existing shareholders in an IPO. If you’re interested in a subsidiary’s IPO and the parent company is already listed, buying its shares could give you an edge during allotment.
7. Open Accounts with Multiple Brokers
It’s a good idea to diversify your IPO applications by opening accounts with several brokerage firms. Each broker might have different allocation capacities for IPO shares, and applying through multiple brokers can increase your exposure to potential allotments.
This strategy ensures that you’re not solely dependent on one broker’s ability to secure shares and can significantly improve your chances of securing an allotment.
How to Diversify with Multiple Brokers:
- Open Multiple Accounts: Set up accounts with various brokers to diversify your chances.
- Compare Broker Services: To pick the best options, look into the reputation and performance of different brokers during past IPO allotments.
8. Engage Consistently with IPOs
Patience and persistence are key when navigating the IPO market. Even if your initial attempts at securing an allotment are unsuccessful, you must keep applying for IPOs regularly. Over time, this consistent engagement will improve your understanding of the process and increase your chances of success.
By staying informed about upcoming IPOs and continuously applying, you’ll also be better positioned to capitalise on new opportunities as they arise.
Conclusion
Securing an IPO allotment can be challenging, especially in oversubscribed issues. However, by applying the strategies outlined in this blog—such as opting for a single-lot application, using multiple Demat accounts, selecting the cut-off price, and applying early—you can significantly improve your chances of success.
Remember, patience and persistence are key in the IPO market. Even if you don’t succeed at first, keep refining your approach, and over time, you’ll increase your chances of securing those coveted shares. By following these tips and staying proactive, you’ll be well on your way to achieving your investment goals through IPOs.
FAQs
Is there any trick to get an IPO allotment?
While there’s no guaranteed trick, applying for one lot, bidding at the cut-off price, using multiple Demat accounts from family members, and avoiding last-minute applications can improve your chances. Strategic planning and paying attention to subscription levels can also increase your odds of success.
How do I guarantee an IPO allotment?
Due to high demand and limited shares, IPO allotment cannot be guaranteed. However, applying early, using multiple Demat accounts, and bidding at the cut-off price can improve your chances. Sticking to smaller lot sizes in oversubscribed IPOs helps increase the likelihood of allocation.
Is IPO allotment based on luck?
Yes, IPO allotment is partially based on luck, especially in oversubscribed issues where demand exceeds available shares. SEBI uses a lottery system to allocate shares to retail investors, so while strategic steps can improve your chances, luck remains a key factor in the final allotment.
How to get IPO 100%?
There is no 100% guarantee that you will secure an IPO allotment. However, to improve your chances, apply for a single lot, submit multiple applications via different Demat accounts, and bid at the cut-off price. Staying updated on upcoming IPOs and applying early also helps.
How can I maximise my IPO chances?
To maximise your chances, apply early, bid at the cut-off price, use multiple Demat accounts with different PANs, and stick to single-lot applications. Avoid errors leading to technical rejections and follow up with brokers to ensure smooth application processing.
