Somebody challenged you to catch the fish from the pond and you have two options:
1) Either take a big fish trap and use it once. 2) Take 3–4 small fish traps and spread it around the pond. Which option would you choose and why?
Although In both the options there is no certainty that you will definitely catch the fish but I would go for option 2 because, If I have multiple small fish traps then I can cover several areas and increase my chance to get the fish.
Now come back to the stock market.
When any IPO hits the market it allocates some reservations for numerous kinds of investors, let’s take an example IRCTC IPO.
Before IPO, the Indian government was holding 100% share in the company and the government planned to raise close to Rs 638 crore by selling 2 crore shares, or 12.6% stake, at Rs 315–320 apiece (Lot: 40 shares) through the IRCTC IPO.
So Post IPO, the Indian government will be holding 87.40% stake.
Retail Investors are restricted to apply for a maximum of 2,00,000 Rs. the amount then you and I can only bid for a maximum of 15 lots or ₹192,000 Rs.
By the time you have decided to apply for a lot IPO witnessed 111 times subscription. Now what?
111 times subscription Out of 111 people, only one of then will surely get the lot.
Now you also decided to apply for IRCTC IPO with an expectation of getting the lot and making lots of money on the listing. Now again you have two options.
Option 1: (The worst way) — Apply for multiple lots from a single account
Unfortunately, this is the widely used method in India, You already know that you are expected to get only get one lot (even if you apply multiple lots) but still you applied for 15 lots with an expectation to increase your chances to get the lot. By doing it you eventually blocked your ₹192,000 with less expectation of getting the lot.
Option 2: (The best way) — Apply for one lot from different Demat accounts
Here ‘Different Accounts’ means apply for one lot from multiple Demat accounts In your family.
Chances of getting the lot to rise if multiple bids are made by different members of the same family. With lucky investors getting a minimum of one bid lot so if a family of five has applied for the same IPO at a cut-off price in smaller bid lots, chances for them getting shares in the draw are better than that for one application.
Example: You applied for one lot from 15 different accounts in your family. If your family is not that big then apply for 5 lots.
1 lot from your Mother’s demat account 1 lot from your Father’s demat account 1 lot from your Brother’s demat account 1 lot from your Sister’s demat account 1 lot from your demat account
By doing it, you have blocked your 64,000 wisely. Your chances of getting the allotment would also be much higher.
IRCTC almost doubled investor’s wealth in a week.
Some other useful tips:
1. As IPO doesn’t work on a First come first serve basis so apply on day 2 or Day 3 only when it is oversubscribed. 2. Always check the grey market premium before applying for lot. 3. Apply only in profitable companies with lessor debt and litigations on promoters.
As per new SEBI norms, It is mendatory to apply the IPO through UPI otherwise your application would be rejected. Nearly 14,000 applications of the retail investors in the Affle India public issue made through the Unified Payment Interface (UPI) platform did not go through
SBI card along with 20 other IPOs will hit the market this year so go for multiple applications, increase your chances to get the allotment and enjoy the gains.
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Read this: 20 Upcoming IPOs in 2020?