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 About IPO
>>   What is an IPO?
 
When private companies i.e. companies that are wholly owned by their promoters, invite the public to subscribe to their shares, this issue of shares is called an Initial Public Offering (IPO). The shares issued could be in the form of fresh equity and/or the promoters sell a portion of their equity to the public. These shares are then listed on a stock exchange where they can be bought and sold by investors.
 
>>   Why do companies come out with IPOs or FPOs?
 
An existing or a newly incorporated company (either private or public) requires funds, in order to expand its existing facilities, undertake a new project, repay a high cost loan or simply augment its working capital (i.e. funds required for day-to-day business activities). In order to mobilize funds for such activities it may offer its shares to investors through an IPO or FPO.
   
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  How is the issue price decided on?
 
A company that is planning an IPO appoints lead managers (SEBI-registered merchant bankers who are responsible for helping the company execute the IPO) to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an IPO can be determined i.e. either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building.
 
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  What is a Fixed price IPO?
 
In this case, the company, together with the lead managers, decides at what price they would like to issue the shares. To arrive at a suitable price, the company’s past performance is assessed using financial ratios. The share prices of competitor companies equities and others in the same league are also taken into consideration when the IPO price is fixed.
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  What is a Book-building?
 
In the book building approach to price setting, the price of an IPO is demand driven. The issuing company sets a floor or base price and a band within which an investor is allowed to bid for shares. The spread between the floor and the cap of the price band cannot be more than 20 per cent of the floor price. Then the company, through its lead managers, invites price bids from investors along with the quantum of securities that they would be willing to purchase at that price. While the issue is open, all investors must submit their bids along with payment for the quantity of shares they have bid for. The payment due is calculated at their respective bid prices.
   
 
One of the lead managers, who is called the ˜book runner”, maintains an order book in which the investors demand and price bids are registered. Once the issue period is over, the book runner demarcates a cut off price, i.e., a price at which the issue will be fully subscribed on the basis of the quantity and price bids received. All bids that are below the cut off price are ignored and investors who have bid at the cut off price or above can purchase shares that have been allotted to them at the cut-off price. SEBI guidelines permit only retail individual investors to apply at the cut off price.
 
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  How long will be the IPO offers remain open?
 
Public issues are kept open for at least 3 and not more than 10 working days. In the case of book built issues, the minimum and maximum period for which bidding is open is 3-7 working days and this can be extended by 3 days, in case the price band is revised. Public issue of some infrastructure companies can be kept open for a maximum period of 21 working days.
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  How will I come to know about allotment and refund?
 
All public issues with a value in excess of Rs 10 crore are compulsorily in the demat mode. So, if you choose to apply for such issues, you must have a demat account and mention your depository participant name and ID number and your client ID details in the bid/application form. In the case of fixed price issues, you are intimated through a Confirmatory Allotment Note (CAN) or a refund order, within 30 days of the closure of the issue.
   
 
All public issues with a value in excess of Rs 10 crore are compulsorily in the demat mode. So, if you choose to apply for such issues, you must have a demat account and mention your depository participant name and ID number and your client ID details in the bid/application form. In the case of fixed price issues, you are intimated through a Confirmatory Allotment Note (CAN) or a refund order, within 30 days of the closure of the issue.
   
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  Do I need to fill up any applications while applying for IPOs?
 
No. You can apply for IPOs without going through the tedious process of application filling, cheque signing and submission. All you need to do is fill in the requisite details in the online screens of IPO application. We will do the paperwork for you on the basis of the information provided by you. This is done on the Authority of the Power of attorney executed by you in favour of Bonanza Portfolio Ltd.
   
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  When will I able to sell shares allotted IPO?
 
The equity shares allotted in the IPO are listed on the stock exchanges within 7 days from the finalisation of the IPO. Generally, the total processing time between the closure of a book built issue and listing is around 3 weeks. In case of fixed price issue, it would be around 37 days after closure of the issue. Once the listing takes place you can sell the shares in the market.
   
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