6 ways to increase chances of allotment in an IPO
David and Kavya are best friends, and they are similar in a lot of ways. Both went to the same school and college, both pursued MBA, both own the same car model, and both work in similar companies.
But they have one big difference. Both Kavya and David have tried their hand at stock market investing and are keen on investing in Initial Public Offerings (IPOs) but David was never able to get a successful allotment. On the other hand, Kavya has managed to get IPO stocks most of the times she tried.
For the longest time, David blamed luck. But this time, his favourite company was going to open their innings in the stock market, and he was not willing to leave it to chance.
So, he put aside his ego and asked Kavya for help, who agreed to let him into her six-step strategy to increase chances of IPO allotment.
Let’s see how Kavya aced it every time and if the same strategy would help David.
How to increase IPO allotment chances?
Kavya has six rules in place that she religiously follows to increase chances of IPO allotment. They are –
1. Avoiding large bids – Most of the recent IPOs were oversubscribed, which means that there were more bids than the number of available stocks. In that case, a lottery system is adopted and that could be the reason why people like David are not getting stocks allotted. Here, applying wisely becomes important.
According to the Securities and Exchange Board of India (SEBI) rules, post 2012, all bids from retail investors are considered equal. That means big applications have no extra edge when it comes to oversubscribed IPOs. Kavya knows this and she always makes minimum bids if she thinks that an IPO is going to be oversubscribed.
2. Applying with multiple accounts, but wisely – Since Kavya made small bids, she always had money left to apply using multiple accounts to increase the chances of allotment. David has been doing the same but there is one critical difference in the way that they are doing it.
David created multiple accounts with multiple brokers with his PAN card and applied for IPOs. SEBI’s rules don’t allow this, and this could have led to the disqualification of his bid if he was ever allotted stocks.
At the same time, Kavya created a separate demat account in the name of her parents and brother, with their permission, and increased the chances of allotment legally every time.
3. Bid at the cut-off price – If an IPO’s price band is between Rs. 240 and Rs. 250, Kavya always goes with the higher band price or the cut-off price, which is Rs. 250 in this case. Bidding for a lower amount will decrease your chances of getting allotted, especially if the IPO is oversubscribed.
4. Avoiding last minute bids – Kavya always bids for an IPO on the first day itself. This helps avoid last minute technical glitches due to rush.
5. Buying shares of parent company – In a recent IPO Kavya had applied for, the retail category was subscribed 50 times while the shareholder category was subscribed only five times. Kavya managed to get into the shareholder category, and it increased her chances of allotment.
Wondering how? She thought wisely and purchased the share of the parent company. This made her eligible to apply under the shareholder category, and she got allotted.
6. Making sure your details are accurate – This might sound trivial to some and it did to David as well but avoiding errors in IPO form is critical in steering clear of rejection. For many people, the excitement of applying for their favourite company’s IPO might create a rush and it could result in errors. Making sure you take your time while filling forms is important and it helped Kavya avoid rejections.
A word of caution
David was all excited to apply for the IPO of his favourite company with his newly learned skills. But Kavya threw in a word of caution. At the end of the day, oversubscribed IPOs are allotted based on a lottery system and while these pointers could help in increase the chances of getting allotted, there is still luck involved. Plus, she advised David to discuss with a financial expert to see if investing in this particular IPO is in alignment with his investment goals and risk appetite.
David listened to Kavya and learned that his investment goals didn’t really match the growth prospectus of this company and he decided to skip investing in that company. Instead, David, with a help of a financial expert, invested in a technology company’s IPO and thanks to Kavya’s tips, he managed to get allotted.
If you are trying to apply for IPO like David, pay heed to Kavya’s advice. If you follow the above pointers, it increases your chances to get shares allotted during IPOs.
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