Part 2: How to Invest in an IPO – Step-by-Step Guide and Smart Strategies

Introduction: Investing in IPO the Right Way

After understanding what an IPO is and its benefits in Part 1, it’s time to learn how to invest in an IPO effectively. Many first-time investors rush into IPOs expecting quick profits, but successful IPO investing requires proper planning, research, and smart strategies.

This detailed guide will explain how to invest in an IPO step by step, common mistakes to avoid, and proven strategies to maximize returns.

Step 1: Understand the Basics Before You Invest

Before you apply for any IPO, revisit what is IPO and why companies go public. Read the company’s Draft Red Herring Prospectus (DRHP) carefully to know:

• Business Model – What does the company do, and is the industry growing?

• Financial Performance – Revenue, profit trends, and debt levels.

• Use of IPO Funds – Are they for business expansion or debt repayment?

• Competitive Edge – Does the company have a unique product or service?

This research builds confidence in your investment decision.

Step 2: Open a Demat and Trading Account

To invest in an IPO, you need:

✅ Demat Account – To hold shares electronically.
✅ Trading Account – To place buy/sell orders after listing.

Most discount brokers like Zerodha, Groww, Upstox, and Angel One in India allow online IPO applications.

Step 3: Ensure a UPI or ASBA-Enabled Bank Account

In India, IPO applications require ASBA (Application Supported by Blocked Amount) or UPI payment:

• ASBA – Your bank blocks the required amount until allotment; if not allotted, money is released.

• UPI – Popular among retail investors for instant approval via apps like Google Pay or PhonePe.

Step 4: Choose the Right IPO

Not all IPOs are profitable. Use these IPO selection tips:

✅ Look for Growth Potential – Focus on sectors with long-term demand (tech, healthcare, renewable energy).
✅ Avoid Overpriced IPOs – Compare the IPO’s Price-to-Earnings (P/E) ratio with peers.
✅ Check Anchor Investors – If big institutional investors participate, it’s usually a good sign

Step 5: Apply for the IPO

Here’s how to invest in an IPO step by step (India example):

1. Login to your broker app or net banking (ASBA option).

2. Select the IPO and Enter Details – Choose lot size and bid price.

3. Confirm and Authorize UPI/ASBA Payment.

4. Wait for Allotment Results – Usually announced 3-7 days after the closing date.

Step 6: Check IPO Allotment and Listing

• If allotted, shares will appear in your Demat Account before listing day.

• If not allotted, your blocked money is released.

• You can either sell on listing day for quick profits or hold for long-term growth.

Smart Strategies for Successful IPO Investing

Now that you know how to invest in an IPO, follow these proven strategies:

✅ 1. Invest in Strong Fundamentals, Not Hype

Don’t apply just because of social media buzz. Companies with solid financials perform better in the long run.

✅ 2. Apply Early and in Retail Quota

Retail investors have a separate quota, increasing allotment chances.

✅ 3. Avoid Over-Bidding

Always bid within the recommended price band. Overbidding doesn’t guarantee allotment.

✅ 4. Diversify Your IPO Portfolio

Don’t put all your money into one IPO. Spread across multiple good-quality IPOs.

✅ 5. Decide Your Exit Strategy

• For Listing Gains: Sell on listing day if the stock lists at a high premium.

• For Long-Term Growth: Hold shares of fundamentally strong companies.

Common Mistakes to Avoid in IPO Investing

Even after learning how to invest in an IPO, beginners often make mistakes:

❌ 1. Ignoring Company Fundamentals

Many investors apply blindly without reading the DRHP.

❌ 2. Expecting Guaranteed Listing Gains

Not all IPOs give profits on listing day. Paytm’s IPO, for instance, disappointed early investors.

❌ 3. Investing with Borrowed Money

IPO investing should only be done with spare capital, as prices can drop after listing.

Top IPOs That Made Investors Wealthy

Learning from history helps investors understand IPO potential:

1. Infosys IPO (1993)

Investors who held long-term became millionaires.

2. Avenue Supermarts (D-Mart) IPO (2017)

The stock multiplied over 6 times since listing.

3. Zomato IPO (2021)

Gave strong listing gains to short-term investors.

Long-Term vs. Short-Term IPO Investing – Which is Better?

Short-Term Strategy

• Focuses on listing gains.

• Works well in bullish markets.

Long-Term Strategy

• Invests in fundamentally strong companies.

• Better for wealth creation and compounding returns.

Should You Invest in Every IPO?

No. Even after knowing how to invest in an IPO, you should only choose IPOs after analyzing:

✅ Company fundamentals.
✅ Industry growth.
✅ Reasonable valuation.

Quick Checklist Before Applying for an IPO

✔ Read the DRHP carefully.
✔ Check subscription levels (high demand usually indicates investor confidence).
✔ Ensure funds are ready in your ASBA/UPI account.
✔ Set realistic profit expectations.

Conclusion: Invest Wisely and Stay Informed

Now you know how to invest in an IPO step by step and the strategies for better returns. IPOs can be exciting, but informed decisions are key to success.

Remember, IPO investing is just one part of your overall financial journey. Diversify with other asset classes like Mutual Funds, Stocks, and long-term Investment Plans to build a solid portfolio.