IPO Types and Structures

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a key characteristic of a Fresh Issue of shares?

New shares are issued to public investors. (correct)

Existing shares are sold to the public.

Funds go to existing shareholders.

Only preferred shareholders can subscribe.

In which type of issue do the funds from investors go to existing shareholders rather than the company?

Bonus Issue

Offer for Sale (correct)

Fresh Issue

Rights Issue

What defines a Follow on Public Offer (FPO)?

A company filing for bankruptcy.

A new public offering by a company that has already undergone an IPO. (correct)

The issuance of bonds to new investors.

A situation where only existing shareholders can participate.

Which of the following best describes a Rights Issue?

Existing shareholders are given the right to buy new shares in proportion to their current holdings. (D) Signup and view all the answers

What is a Bonus Issue?

Issuing additional shares to existing shareholders without any cost. (B) Signup and view all the answers

What document must companies file with SEBI to raise funds from the public?

Draft red herring prospectus (B) Signup and view all the answers

Which of the following investors are typically targeted in a Preferential Issue?

Identified groups like promoters and strategic investors (C) Signup and view all the answers

Who would typically benefit from a Rights Issue?

Existing shareholders wishing to maintain their ownership proportion. (A) Signup and view all the answers

What is the primary purpose of utilizing Unified Payment Interface (UPI) in the IPO investment process?

To provide a secure payment mechanism (C) Signup and view all the answers

What information must be included in the application form when applying for shares during a public issue?

Name, address, number of shares, bank account details, and demat account information (C) Signup and view all the answers

What happens to the funds in an investor's account if their share application is not allocated?

They get released for further utilization (B) Signup and view all the answers

Which aspect must be carefully considered before applying for shares in a public issue?

The prospectus of the company (C) Signup and view all the answers

Who is responsible for authorizing the payment during the IPO application process when using ASBA?

The investor’s bank (B) Signup and view all the answers

What is a key restriction when applying for investments in Public Issues?

There is a limit on the minimum and maximum number of shares that can be applied for (D) Signup and view all the answers

Which payment mechanism allows investors to invest in IPOs without directly debiting their accounts at the time of application?

ASBA (C) Signup and view all the answers

Which type of account is essential for receiving shares after a successful IPO application?

Demat Account (C) Signup and view all the answers

What is required for the blocking of funds during the investment process?

Investor's UPI PIN authorization (D) Signup and view all the answers

Which of the following banks can be used to create a UPI ID for investing in IPOs?

A bank listed as a Self-Certified Syndicate Bank by SEBI (D) Signup and view all the answers

What happens to excess money after shares are allocated?

It is unblocked from the investor's account (D) Signup and view all the answers

Which of the following statements about UPI applications for IPOs is false?

Third party UPI IDs are acceptable for allocations (A) Signup and view all the answers

What are Annual Maintenance Charges (AMC) related to?

Fees for maintaining a Demat account (A) Signup and view all the answers

Which method is specifically prohibited a priori in IPO applications using UPI?

Using a third party bank account for application submission (D) Signup and view all the answers

What is the correct action if an investor wishes to invest more than Rs. 2 Lakhs in an IPO via UPI?

Investors must make separate transactions, each under Rs. 2 Lakhs (A) Signup and view all the answers

What is the full form of ASBA in the context of IPO applications?

Application Supported by Blocked Amount (B) Signup and view all the answers

Study Notes

IPO Types

Fresh Issue of Shares: New shares issued by the company to public investors, raising funds for company purposes.
Offer for Sale: Existing shareholders sell their shares to the public; funds go to the sellers, not the company.

Follow-on Public Offer (FPO)

Issued by companies that have previously conducted an IPO, introducing new securities to the public.

Modes of Issue

Preferential Issue: Securities issued to a selected group, like promoters or strategic investors, rather than the general public.
Rights Issue: Existing shareholders are granted the right to purchase newly issued shares proportionate to their holdings.
Bonus Issue: Additional shares issued to existing shareholders at no extra cost, based on their current shareholdings.

Regulatory Requirements

Companies must file a draft red herring prospectus with SEBI to raise public funds.
It is advisable to maintain a demat account for holding securities, with some exceptions for legal heirs.

Investing Process in Primary Market

Shares can be purchased directly from companies during public offers by completing an application form and paying during the offer period.
Application forms require investor details such as name, address, number of shares, and bank details.
Two payment methods include Application Supported by Blocked Amount (ASBA) and Unified Payment Interface (UPI).

Allocation and Fund Blocking

The IPO listing process takes six working days post-issue closure.
Funds for applied shares get blocked in investor accounts; if not allocated, these funds are released.
The blocking of funds is facilitated by an escrow/sponsor bank after investor authorization.

Payment Process

Once allocated, funds are debited from the investor's account while any excess amount is unblocked.
Payment authorization occurs using the UPI PIN provided during the blocking process.

UPI Usage for IPO Investment

UPI ID must be created with banks listed as Self-Certified Syndicate Banks (SCSBs) by SEBI.
Use only specified mobile apps and UPI handles for application submissions.
Applications must be submitted through authorized members like Syndicate Members or Registered Stock Brokers.
Application limit for IPO via UPI is ₹2 Lakhs per transaction for retail individual investors.
Third-party UPI IDs or bank accounts are not permitted for allocations.

Glossary of Terms

AMC: Annual Maintenance Charges.
ASBA: Application Supported by Blocked Amount.
BSDA: Basic Services Demat Account.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz explores the various forms that an Initial Public Offering (IPO) can take, including fresh issues of shares and offers for sale. Understand how each form affects both the company and its investors. Test your knowledge on the mechanisms used in IPOs.