An IPO can attract plenty of attention when a company decides to list its shares on the stock market. For an investor, though, the actual application process is fairly straightforward once you know what each step means.
You choose the IPO, enter the application details, authorise the required payment and then wait. What happens after that is where things can get a little less obvious.
An IPO application is not the same thing as automatically receiving shares. There is an allocation process, and the final outcome depends on the number of shares available and the demand for the issue.
Start by looking at the IPO details
Before applying, it is worth spending some time with the offer documents rather than making a decision based only on how much attention an IPO is receiving.
The issue price or price band, number of shares being offered, minimum application size, issue objectives and information about the company’s financial position are among the details investors can examine.
The prospectus and other documents contain considerably more information than the headline figures usually seen in an IPO announcement.
This is also where you can look at the risks identified by the company itself. They may include factors relating to the business, industry, competition, financial performance or other circumstances that could affect the company after listing.
How the online application works
Once you have decided to apply, the application can generally be made through a supported investment platform.
InCred Money’s app allows users to view and apply for upcoming IPOs through the platform. The process is digital, so you can enter the application details without having to fill out a physical form.
You will need to follow the payment and authorisation process specified for the application. The amount involved is generally blocked or handled through the applicable mechanism rather than simply being treated as an immediate purchase of shares.
The exact process can depend on the issue and the payment method being used.
Applying does not guarantee an allotment
This is probably the most important thing to understand about IPO applications.
If an issue receives applications for more shares than are available in a particular category, not every applicant will necessarily receive an allotment.
So if you apply for an IPO, there are at least two possible outcomes. You may receive shares, or you may not receive an allotment.
If you do not receive the shares, the blocked amount is released according to the applicable process.
If you are allotted shares, they are credited to your Demat account after the relevant process is completed.
What happens after allotment?
Once the shares have been allotted, investors can then check their holdings through their Demat account.
The next stage is the company’s stock-market listing. Once listed, the shares can then trade on the relevant stock exchange and further, their market price can move above or below the IPO price.
This is an important distinction. The price at which shares are offered in an IPO is not a guarantee of the price at which they will trade once they are listed.
A listing gain is possible, but so is a decline in price.
What if you do not receive the shares?
Not getting an allotment does not mean there is another step you need to take to buy the shares.
The application amount is released through the applicable process, and the investor can then decide what to do with the funds.
If the company is subsequently listed, investors who still want exposure to it can potentially purchase its shares through the secondary market, subject to the prevailing market price and normal trading conditions.
That price may be very different from the original IPO price.
Applying through InCred Money
InCred Money provides an IPO section through its app where users can view ongoing and upcoming issues and submit applications digitally.
The platform also provides access to listed stocks, ETFs and other investment products, allowing investors to manage different types of investments through the same account setup.
That convenience does not change how an IPO works, though. The issue remains subject to its own terms, allotment process and market conditions.
Investors should therefore review the relevant offer documents and issue details before applying rather than treating the availability of an IPO on an app as a reason to invest.
An IPO is still an investment decision
The online application may take only a few steps, but deciding whether to participate requires considerably more thought.
Look at the company’s business, financial information, use of the funds being raised and the risks outlined in its offer documents. It is also worth remembering that a well-known company or a heavily discussed IPO is not automatically suitable for every investor.
Once the application is submitted, much of the process is outside the applicant’s control. The useful part you can control is what you know before you press the application button.
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