How to Transfer Money from Bank Account to IPO Account?

Introduction:

Initial Public Offering is a milestone for a Company going from private to public. For you, it is an opportunity to invest early in a new company or a company that is yet to find the actual market value. The article attempts to explain the buying procedure and to eradicate the misnomers.

Know How to Transfer Money from Bank Account to IPO?

An IPO abbreviates for Initial Public Offering. When a private limited company goes public, it issues shares to the public or you directly. The entire transaction results from direct interaction between the seller (i.e. the IPO issuing company or existing shareholders) and the buyers or investors (you or institutional investors).

Now, let us understand how an aspiring Company raises capital through IPO.

Step 1: The Company hires an investment bank. A team of underwriters or investment banks gives guidance to the company on the IPO process initiation. Many a time, big companies approach more than one investment Bank. They evaluate the company's financial situation, assets, liabilities, and other associates; and accordingly plan to cater to the financial needs. Then signing of an underwriting agreement happens. It contains the deal details, the amount to be raised, and the securities to be issued.

Step 2: The company files the registration statement with the Securities and Exchange Commission (SEC). The report contains fiscal data and the company's business plan, how the capital will be raised will be utilised, and the security of the public investment. The compliant statement gets a green signal; otherwise, it is sent back with a comment.

Step 3: At this stage, the Red Herring Document is drafted and distributed to all concerned about the IPO process. The document contains a probable price estimate per share, along with other necessary details. However, investors should know that Red Herring Document is not the final prospectus. It is for the preliminary assessment of the IPO amongst potential investors.

Step 4: At this stage, the IPO is priced. The number of shares to be sold and the stock exchange where the company is listed are decided. Then the company put forward their requests to SEC to announce the registration statement as effectual to initiate the purchases.

Step 5: On a planned date, the prospectus and the application form become available to the public online and offline platforms.

Additional Read: Can I apply for IPO without a Demat account?

Now Let Us Understand the IPO Buying Procedure by Investors:

Investors usually purchase IPO directly from the issuing company. They typically fill the application form and attach a cheque for the specified number of shares they want to buy. They need to comply with the minimum order quantity. After fulfilling the requirements, investors submit the form along with the cheque within the stipulated time frame. The procedure may happen directly with the issuing company or through the approved brokers.

Nowadays, an online facility is available for IPO subscriptions. Investors can apply online through ASBA (Applications Supported by Blocked Amount). The process is developed by SEBI and through ASBA. Unless the shares are allocated, the money doesn't get deducted from the investor's bank account.

Nowadays, Banks also give options to their customers for purchasing IPOs through net banking. 

However, investors need to remember that the acquired securities will be credited in the dematerialised form; and therefore, a Demat Account is necessary to buy IPOs.

That is how the entire buying procedure happens.

Additional Read: How to track upcoming initial public offerings (IPOs)?

Misnomer:

So, from our above discussion, it is clear that a Bank Account and A Demat Account are needed. A bank account transfers the money (either through cheque instrument or through net banking) from the investor to the issuer. The demat account is for getting the IPO allotment of shares in dematerialised form. There is no such concept of a separate IPO account. An IPO (Initial Public Offering) denotes the entire process. Even when the investors buy IPO securities through a brokerage house, they additionally need a trading account in their kitty along with the Bank Account and Demat Account.

In Conclusion:

IPO subscription is a booming phenomenon these days. With growing financial literacy, investors are showing a leaning tendency to IPO purchase. Therefore, certain fundamentals are essential to understand buying procedures, which this article attempted to highlight. It also bade to remove the IPO account misnomer. We hope the readers/investors will be benefitted in terms of their understanding.

Disclaimer:

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  Please note, IPO related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.