You might have heard people talking about a company “going public” or “launching an IPO.” Many new investors get curious but are not sure how to take part. Before you start, it is important to understand the basics. What is an IPO? IPO stands for Initial Public Offering. This happens when a private company decides to raise money by offering its shares to the general public for the very first time. By applying for an IPO, you get a chance to become a shareholder in that company right from the beginning. To do this, you must first open a demat account, because without it, you cannot hold or trade shares in the stock market.
Let us now understand how you can use your demat account to apply for IPO investments in a simple step-by-step manner.
Step 1: Understand the Basics of IPOs
When a company needs funds to grow, it can invite the public to invest in its shares. The process of raising this money is called an IPO. In return, the company issues shares. A share is a small part of ownership in a company. If you buy these shares, you become one of the owners. There are mainly two types of IPOs:
- Fixed Price Offering: The company sets a fixed price for its shares. You apply at that price.
- Book Built Issue: The company offers a price range. Investors place their bids within that range, and the final price is decided based on demand.
Step 2: Open a Demat Account
A demat account is like a digital locker where your shares are stored electronically. It replaces the old system of paper share certificates. Just like a savings account holds your money, a demat account holds your stocks, bonds, or mutual funds. To apply for an IPO, having an active demat account is compulsory. You can easily open a demat account online with a registered broker or financial institution. Usually, you will need documents like:
- PAN Card
- Aadhaar Card
- Address Proof
- Passport-sized photograph
Once your demat account is active, you can link it to a trading account and your bank account. These three accounts together allow you to apply, buy, and sell shares smoothly.
Step 3: Arrange Your Funds
Before applying for an IPO, make sure you have enough money in your bank account. The application process uses a system called ASBA (Application Supported by Blocked Amount). This means the required money is blocked in your bank account until the allotment process is complete. If you get the shares, the money is taken from your account. If you do not get the shares, the blocked money is released back to you.
Step 4: Apply for an IPO Online
Applying for an IPO online is simple. Here are the general steps:
- Log in to your net banking or trading account.
- Look for the IPO or “Invest in IPO” option.
- Select the company you want to invest in.
- Enter the number of shares or “lots” you want to apply for. A lot is the minimum set of shares you can buy in that IPO.
- Enter the price within the given range. If you are unsure, you can apply at the “cut-off” price, which means you are ready to buy at the price decided by the company.
- Provide your UPI ID or confirm the ASBA block request from your bank.
- Submit the application and keep a record of the acknowledgement.
Step 5: Wait for Allotment
After the IPO closes, the company checks all the applications. If the demand is high, you may get fewer shares than you applied for, or sometimes none at all. Once the allotment is final, you will get a CAN (Confirmatory Allotment Note). The allotted shares will then be credited to your demat account. If no shares are allotted, the blocked money in your bank account will be released.
Step 6: Start Trading in the Secondary Market
After the IPO shares are allotted, they are listed on the stock exchange. This is called the secondary market, where shares are regularly bought and sold between investors. From here, you can decide whether to hold your shares for the long term or sell them after listing. Since the shares are already in your demat account, you can easily sell them through your trading account whenever you wish.
Tips for Using a Demat Account for IPOs
- Do proper research before applying. Study the company’s background, financial reports, and future plans.
- Apply at the cut-off price if you are not sure about the right bid. This increases your chances of allotment.
- Check your bank balance to avoid failed applications. Make sure the required funds are available before you apply.
- Track allotment status through your broker’s app or by visiting the registrar’s website.
- Think about your goals before selling. If you want quick gains, you may sell on listing day. If you believe in the company’s long-term growth, you may hold the shares.
Final Thoughts
Investing in IPOs is one of the most exciting ways to enter the stock market. It gives you the chance to buy shares of a company at the very beginning of its journey as a public company. To do this, the most important step is to open a demat account, as it is needed to hold your shares in electronic form. Once you have a demat account linked with a trading and bank account, you can easily apply for IPOs using simple online steps like ASBA or UPI. Remember, IPOs can offer good opportunities, but it is important to research the company and understand the process clearly. With proper planning and the right guidance, you can take confident steps into IPO investing. If you are looking for a reliable way to start, you may explore trusted financial platforms such as Findoc, which makes the process simple and investor-friendly.
