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An IPO marks the moment when a private company offers its shares to the public for the first time through a stock exchange. This move helps companies raise capital for growth and expansion. However, unlike traditional share certificates issued in paper form, the modern Indian stock market operates with electronic shareholding via demat accounts.
A demat account, short for dematerialised account, is mandatory for holding shares in electronic form. When you invest in an IPO, the allotted shares are credited directly to your demat account. This eliminates the risks associated with physical share certificates like theft, loss, or damage and enables seamless trading and transfer of securities.
The Securities and Exchange Board of India (SEBI) mandates that shares allotted through an IPO must be credited in electronic form to the investor’s demat account. This requirement protects investor interests, improves transparency, and streamlines the settlement process on stock exchanges.
Holding shares in a demat account offers numerous benefits:
Safe custody: No physical certificates to handle or lose.
Easy transfer: Shares can be transferred or sold quickly without paperwork.
Consolidation: All securities held in one electronic account regardless of the number of IPOs or stocks purchased.
Dividend and corporate benefits: Direct credit into the linked bank account without delay.
To apply for an IPO via your demat account, you must link your demat account with a trading account and a bank account. This linkage facilitates the Application Supported by Blocked Amount (ASBA) process, the standard payment mechanism for IPOs.
ASBA is a system where the IPO application amount remains blocked in your bank account until shares are allotted. Funds are debited only after allotment, ensuring that investors do not lose interest on blocked amounts unnecessarily.
When you apply through your demat and trading accounts, your broker submits the application and coordinates with your bank for ASBA. This integrated approach makes IPO investment streamlined and secure.
Log in to your trading platform linked to your demat account.
Locate the active IPO under the IPO section.
Enter bid details such as quantity and price band within prescribed limits.
Submit the application. The bid amount is blocked in your bank account via ASBA.
Upon share allotment, the corresponding shares are credited to your demat account, and payment is debited accordingly.
SEBI guidelines clearly prohibit investors from submitting IPO applications through multiple demat accounts. This rule is intended to prevent misuse of the IPO allotment process and ensure fairness.
Applying through more than one demat account for the same IPO can lead to:
Rejection of all applications submitted by the investor.
Forfeiture of application money in some cases.
Blacklisting of demat accounts.
Investors should avoid duplicate applications with multiple demat accounts to prevent legal and financial consequences. It is advisable to use a single demat account per investor for each IPO application.
When selecting a demat account provider for IPO investment, investors can consider:
Ease of IPO application: Look for brokers offering integrated IPO application platforms with simple ASBA processes.
Charges and fees: Compare account opening, maintenance, and transaction fees that might affect overall investment returns.
Customer support: Efficient assistance can be crucial during IPO subscription periods.
Reputation and reliability: Opt for brokers regulated by SEBI with a good track record.
Digital platform: Robust online/mobile platforms ease access to IPO applications and status tracking.
Demat accounts are maintained through Depository Participants such as brokers or banks, who act as intermediaries between investors and depositories like NSDL or CDSL. The DP facilitates account opening, maintenance, and interaction with the stock exchanges.
Incorrect or inconsistent information between your demat, trading, and bank accounts can cause application rejections. Ensure that your PAN, name, and other KYC details match across all linked accounts.
Application failures can occur due to server issues or incomplete submissions. Applying well before the IPO closing date and verifying submission confirmation helps mitigate such risks.
While allotments are generally processed on time, delays can occasionally occur due to system backlogs or compliance reviews. Staying updated via your broker’s portal and stock exchange notifications is advisable.
Keep your KYC documents updated and verified.
Double-check all application details before submission.
Use only one demat account per IPO application.
Apply within the specified price band and lot size.
Opt for brokers with a user-friendly IPO application process.
An IPO demat account plays a vital role in facilitating secure and efficient investment in IPOs. Investors must ensure compliance with SEBI regulations, including using a single demat account for IPO applications and completing KYC formalities. Choosing a suitable demat account provider and understanding the ASBA process can simplify IPO investments and improve the overall experience. By adhering to these guidelines, investors can confidently participate in IPOs and manage their investments effectively.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Sources
Securities and Exchange Board of India (SEBI)
National Stock Exchange (NSE)
Bombay Stock Exchange (BSE)
NSDL Depository
CDSL Depository
Investopedia – Demat Account
Zerodha Varsity – IPO Process
Yes, SEBI mandates a demat account to hold IPO shares electronically.
No, applying through multiple demat accounts for the same IPO is prohibited and can lead to application rejection.
ASBA blocks the IPO amount in your linked bank account and only debits the money upon successful allotment. Shares are credited to your demat account.
Yes, you can apply using a demat account from any SEBI-registered Depository Participant.
Mismatch or incorrect details can result in application rejection or failure in share allotment.
Charges vary by broker; some may levy fees for demat account maintenance or IPO application processing.
You can check allotment status through your broker’s platform, stock exchange websites, or NSDL/CDSL portals.
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Posted on 18 Aug
Geetanjali Lachke
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