loader2
Partner With Us

Margin Funding in IPO

Several successful initial public offerings (IPOs) and debuts on the exchanges has triggered increased investor interest in this area. More and more investors are now looking to try their hand at putting their money in upcoming IPOs. The prospect of generating quick, easy and high returns has caught the attention of many investors, especially high-net-worth individuals (HNIs).

Many now wish to invest a higher amount in such share issues. This is where the concept of margin funding in an IPO (also called IPO financing) comes into the picture. Margin funding in IPOs is an option available to investors, usually HNIs, willing to leverage their existing funds to get higher amounts and invest the same in an initial public offering.  

Here's what Margin Funding is all about

Want to use your funds to get more to invest in an upcoming IPO? Then you can go the margin funding or IPO financing way. This is essentially a short-term loan provided by certain lenders and brokers, which allows you to invest a higher amount in an IPO. The IPO financing option is a product that usually targets HNIs, but can be availed of by other investors as well. In India, only the non-banking finance arms of some banks and non-banking finance companies (NBFCs) are allowed to offer margin funding.

Key points about how Margin Funding works

Lenders typically ask a customer (investor) to pay around 40%-50% of the loan amount upfront as margin. The lender then provides the remainder. The funds are provided for a short duration, usually around a week (6-8 trading days), from the day the IPO subscription closes until the listing day.  

An investor is also required to pay an interest of anywhere between 8%-15% (varied from lender to lender) on the loan amount. A point to be noted here: even if you are allotted lesser shares than what you had applied for, you must pay interest on the entire loan amount sought.

IPO financing facility comes with additional costs, over and above the interest payable. You have to bear the cost of dematerialisation, processing fees, and dematerialisation charges again when the shares are sold after listing. Hence, one must carefully assess the scope of returns in the IPO investment and the risk involved.

Steps involved in IPO financing

Here is a look at the different steps involved in margin funding or IPO financing.

  • First, you need to open a funding account with the NBFC (lender).
  • You need a new demat account or provide the power of attorney of an existing one.
  • Then, fill out the forms for margin funding, as required by the lender. Complete the documentation part of the process.
  • Inform the lender of the IPO you wish to invest in, details of the share issue, price, number of shares, etc.
  • The next step involves providing the loan margin or upfront payment amount.
  • Within 24 hours of completion of these steps, the funds are released by the lender.
  • The lender then applies for the required number of shares on your behalf.
  • The amount payable is clocked for the time that the allotment process takes place.
  • Once allotted, the shares reflect in your demat account, while the money is deducted for the same.
  • The lender is then directed to sell the shares once listed.
  • Finally, the profit and loss account is settled by the lender on the sale of shares. 

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, I-Sec is acting as a distributor to offer IPO distribution related services and distribution of IPOs are not Exchange traded 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.

Most Popular

f
  • 15 Sep 2021
  • ICICI Securities

5 Most Popular Reasons for Switching Bank

In the beginning, you would hear from them quite often. But of late, you're noticing more and more signs that it's no longer working. We are referring to your relationship with your bank. Click here to read how to recognize the red flags in your banking relationship and why it might be a good time to end the bond.

  • 15 Sep 2021
  • ICICI Securities

How Intraday Trading Works? Detailed Ideas

Intraday trading in India has been gaining momentum of late. It is no longer the option of only trade pundits.

  • 15 Sep 2021
  • ICICI Securities

What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market, trading is no more a domain dominated by stock pundits.

  • 05 Sep 2021
  • ICICI Securities

Is it Good To Invest in Cyclical Stocks?

Akin to how the pedals of a cycle go up and down as it moves forward, the share price of certain stocks goes up and down in accordance with the economic cycles a country goes through. 

  • 05 Sep 2021
  • ICICI Securities

A primer on Fixed Maturity Plans

If you happen to have some surplus funds which you don’t need for a specific period, but you don’t want to take the risk of investing this money in the stock market, you can very well put this money in a Fixed Maturity Plan or FMP. 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Equity Mutual Fund

You must have heard a lot about investing in mutual funds. But before jumping on this trend you need to assess a mutual fund scheme according to your goals, investment horizon, risk profile, liquidity needs and many other factors to find a suitable match. 

  • 05 Sep 2021
  • ICICI Securities

A Beginner’s Guide to Monetary Policy Tools

The Reserve Bank of India has the incredibly crucial responsibility to formulate the monetary policy. The main objective of monetary policy is to control inflation and provide a conducive environment for the country's economic growth. 

  • 05 Sep 2021
  • ICICI Securities

Buying Penny Stocks and its Risks

There is a specific category of stocks whose prices are very low and they seem to yield exponential returns. But do you know that investment in such stocks could be risky? 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Debt Mutual Fund?

Debt mutual funds primarily invest in fixed income securities, which include money market instruments like commercial papers, corporate bonds, treasury bills, government bonds and other instruments.

  • 05 Sep 2021
  • ICICI Securities

Tax Saving Using Section 80D

“Make your life safe and get insurance immediately”. This statement was never more relevant than the times when the pandemic threatens to wipe off the population. 

Open an Account

Sign Up for Free

+91

Please use the mobile no registered with Aadhaar.

OTP sent to +91 1234567890

Didn’t received OTP? Resend

00:30

iciciDirect-money-logo
iciciDirectMoney-App

Get Research Backed Recommendations.

Download The app now

or Scan below QR Code To download app

QRcode