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What happens after IPO is closed

Introduction

When a company sells its stocks to the public for the first time, it is known as an Initial Public Offering [IPO]. Now that the business has gone public, the shares of the company stock become available for everyone to see at all times of the day on the public stock markets. After investing in the IPO, knowing what happens to the stock price and studying it can help you make better decisions when exercising your options or looking to sell the resulting stock.

What Happens to Stocks after a Closed IPO

What takes place immediately after submitting the IPO bid?

Once the IPO process has ended, the allotment is finalised by the third working day. This is also referred to as the basis of allotment date. 

Intimation of funds takes place on the fourth working day, and on the fifth working day, you receive your shares in your demat account. If you are not allotted shares, your money is refunded back to your savings account. On the sixth day, the closed IPO is officially listed on the stock exchanges.

What happens to my money if the IPO is subscribed completely?

On the closure of the IPO, all applications or bids are registered online. They are then checked for verification and are segregated into qualified and unqualified categories. The ones that have been incorrectly submitted are disqualified or removed. 

The reasons for disqualification could be incorrect credentials, wrong or missing documentation, and other similar errors. Suppose the total number of qualified applications are fewer than or equal to the total number of shares offered in the IPO. In that case, share allotment takes place that results in every applicant being assigned a specific portion of shares.

Additional Read: How to track upcoming IPOs

What if the bids for the IPO are marginally higher?

If the total number of bids is greater than the total number of shares issued, as an investor, you are likely to get at least one lot of shares from the closed IPO.

If the IPO subscription is significantly higher, what happens to my money?

A lucky draw system is employed to allot shares if the bid is much higher than the cumulative sum of shares issued by the IPO. In this scenario, only the submissions at the upper band of the price band become effective. The remainder of the bids are ignored, and the money is refunded to the investors.

What happens to the stock price after the IPO?

Generally, IPOs are issued when companies sell shares for their own benefit. Once the IPO has closed, the ideal outcome is for the stock prices to begin trading even or declining in the first few weeks of the trade.

Can the stock be sold immediately after the IPO?

Since the IPO comes with a lockup period, there is a contract provision that prevents insiders who hold shares from selling them for a specific period of time after the IPO has closed.

Earlier, under specific conditions, the lock-in period for promoters' investment after the IPO was three years. Recently, markets regulator SEBI has reduced the lock-in to 180 days for employees and promoters. In addition, promoter shareholding lock-in period in excess of a minimum of 20% has also come down from one year to six months.

Additional Read: All you need to know about oversubscribed IPOs

Where does the money go after investing in the IPO?

Generally, the funds raised by the company from the sale of IPO shares are put to use for several things. For instance, the company may purchase new equipment, real estate, expand the business, buy new businesses, etc., among other tasks. 

As an investor in a closed IPO, you may be rewarded through dividends by the company, or you can sell the shares when the share price appears favourable to trade.

Conclusion

As a stock market investor, IPOs are attractive investment propositions. That's because it gives you the opportunity of buying low and selling high, provided the stock prices increase after the IPO has closed.

Before investing in IPOs, remember to conduct a thorough background check on the potential IPO stock you want to bid. After all, it's your money, and knowing about the company and its prospects is essential.

Full-service reputed brokers with award-winning analysts and research teams review such companies thoroughly to provide their investors with in-depth information. Opening a demat and a trading account with the right broker can ensure you discover more about the company's finances, latest updates, industry health and enjoy a seamless investment experience.

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.

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