What happens to the money if I don't get the allotment in an IPO?

Last Updated: 02-Dec-2022

Short Answer

While applying for an IPO a person either uses the UPI or ASBA facility for the payment and in both the process the total amount of money remains blocked by the bank under a "Mandate" until the allotment process is finalized hence the amount remains in the bank account of the investor and only gets debited if he/she receives the allotment of the shares.

Detailed Answer

IPO-

An IPO is a process through which a private company becomes a public listed company by selling a part of its Equity or shares to the common public and in exchange raises some capital from the existing shareholders or for the company.

How do IPOs work?

Generally, companies do not directly get involved in selling their shares to the common public in exchange for their money. They appoint a team of professionals which include Underwriters, Registrars, and bankers to undertake the whole process for them. In this way, the Registrar appointed by the company takes care of all the allotment procedures and fund management.

Process of Payment for an IPO-

There are 2 main methods through which Investors can pay and apply for an IPO. They are -

  • UPI (Unified Payment Interface)
  • ASBA (Application Supported By Blocked Amount)

When an investor applies through either of these methods then the money is blocked by the partner bank. The money is under “Mandate” from the respective banks. This means that that specific amount of money cannot be accessed by the individual till the time the mandate is revoked. This mandate usually ends after a week of the IPO. Till then it remains blocked in the user's Bank account until the allotment process is finalized.

If the individual is allotted the shares then the amount is debited from his/her bank and the Shares are credited into their Demat account. On the other hand, if the investor is not allotted any shares then the mandate is revoked and the blocked money is unblocked.

IPO Allotment Process

As understood from the above process, when you apply for an IPO, the amount is Blocked in your Bank account through a Mandate that is revoked after the allotment process is completed.

Hence if one does not receive any allotment then the full amount is automatically unblocked and the investor gets full access to his/her money.

Whereas if they are allotted with the shares then the blocked money gets deducted from their bank account and in return the shares are credited to their Demat account. In this way, one can stay assured that their money is completely safe in their own Bank Account when applying for an IPO.

Tagged With: ipoipo allotmentshare allotmentinitial public offering
Categories: IPO Basics
Ask Your Query for FREE, Get quick answers from our FINTRAKK community!
Discussion (0)
Related FAQs
What is an IPO or Initial Public Offering?

IPO or Initial Public Offering is the process through which a private company goes public by offering its shares to the public for the first time.

Which bank is safest in India?

You can choose any bank in India to open an account in, be it a private-sector bank or a public-sector bank. By the market share SBI, HDFC, and ICICI Bank are the three top banks that can be considered when looking at the largest banks in India.

What is PPF or Public Provident Fund in India?

Public Provident Fund Scheme is a saving scheme that comes with tax benefits. Ministry of Finance introduced this scheme in the year 1968. The main objective of PPF is to encourage general people to mobilize their small savings. The interest offered on these schemes are not taxable. Precisely, PPF is an investment with non-taxable returns.

What happens if the IPO is not fully subscribed?

The SEBI (Securities and Exchange Board of India) requires every IPO to get at least an overall 90% subscription to proceed to the allotment process. If an IPO fails to get a 90% overall subscription (including the QIB, NII, and Retail category) by the last day of the issue then the IPO is cancelled and the money collected from the investors is refunded back.

Is IPO investing good for new investors?

IPOs can be a good option for beginners as they provide an opportunity to get the shares of good companies at an attractive price. Though IPOs can provide good listing gains and quick profits, good companies can help you to create massive wealth in the long term.

How to check IPO allotment status in India?

IPO's (Initial Public Offering) is very popular right now. Therefore getting an allotment is not easy. There are two different ways in which you can find out your allotment status. These are through the BSE India website and the company Registrar's website. Know the details and another bonus way of finding out allotment status here.

What is Basis of Allocation or Basis of Allotment in IPO?

It is the document issued by the owner of the IPO for share allocated as per the regulatory guidelines in an IPO. This contains all the crucial details about the Initial Public Offering.

Are IPOs safe for investing?

Investing in an IPO can be considered safe as there are no major Capital Loss risks and most companies that come up with an IPO price their shares at decent valuations which gives an opportunity to the investors get the shares at a discount from the market price. Most good quality companies also give good Listing gains and good returns in a short time. Some examples are, IRCTC, Route Mobile, Burger King, etc.

How to Check IPO allotment in Zerodha?

There are many ways to check the IPO allotment status but Zerodha doesn't provide this facility on their website.** To check the allotment status you can visit the website of the registrar of the IPO**, for example, Link Intime, Karvy. With the help of a PAN number, you can easily check the status.

How to apply IPO in Zerodha? Buy IPO Online

If you are a Zerodha customer, you can apply for IPO online through Zerodha Console (Zerodha Back-office). The process for applying an IPO process has been explained in detail above. Here are few other answers to important queries that you may want to learn.