IPO Markets in India: Sector which attracts wide range of investors from professional experienced one to novice market player too. However, there is a constant query if minors can apply for IPOs. That is what we are trying to find out in minor account with allotment process, In this article:
Can Minor Apply for IPOs?
A frequent question arises: "Can I apply for an IPO in a minor account? Yes, Minor accounts can indeed be a part of the IPO process in India, but by meeting certain criteria only. According to the rules by SEBI, the minor himself cannot open an account independently for demat purposes. A demat account is one which needs shares in electronic form. The participation would therefore be a function of the participation by the guardian of the minor.
1. Demat Account: Opening a demat account in the name of the minor with either of the parents acting as the guardian.
2. Minor PAN Card: PAN card is a must to open the demat account.
3. Minor Bank Account: Maintaining a bank account in the name of the minor and being overseen by a guardian.
4. Application Form: On the day of IPO bidding, the application form is filed in favour of the minor by its guardian.
5. Linked Accounts: The demat and bank accounts are required to be linked so that hassle-free transactions could be done.
Once the above steps are undertaken then the minor becomes eligible to apply for an IPO with the help of a guardian.
How allotment of IPO happens in case of Minor accounts
IPO allotment is handled by the issuing company and the appointed Registrar. It is the same for a minor's account and an adult's account. The issuing company, along with the appointed Registrar, manages this process. Here’s a step-by-step look at how IPO allotment works for minor accounts:
IPO Allotment Process
1. Application Filing: Minor or adult investors file their IPO applications within the provided time period. Applications can be filed online using ASBA (Applications Supported by Blocked Amount) or filed offline using banks and financial institutes.
2. Amount Bidded: This is a vital point. Through the ASBA process, the amount bidded will be blocked in a minor's account, and on allotment only the required amount will be debited from the same account, which helps ensure the clarity of the system and hence prevents fraud.
3. Oversubscription: Now, if there is any oversubscription, as far as the allotment is concerned, it shall be proportionate. There can be an example given here:
- In a case wherein an IPO allows applications for 100 cr shares but it has only 10 cr shares available. Then, every applicant shall get 10% of all the shares applied for them.
4. Lottery Draw: In case of oversubscription, such allotments are usually computerized random draws in order to maintain the fair distribution in each allotment.
5. Allotment Confirmation: Once the allotment happens, the shares are credited to the minor's demat account, and the linked bank account is debited by the amount that would have been required.
Calculation Example
A minor submits an application, along with the guardian, for 1,000 shares of a company quoted at INR 100 per share. Here is the process, step by step.
Total Application Amount = 1,000 shares INR 100 = INR 1,00,000
- Bank Blocked Amount: INR 1,00,000 through ASBA
- Allotment Information:
- IPO Subscribed 10 times
- Possible Allotted Shares: 1,000 / 10 = 100 shares
- Investment at last: 100 shares INR 100 = INR 10,000
- Surplus Blocked amount Released: INR 1,00,000 - INR 10,000 = INR 90,000
Important Notes
Guardianship : The procedure and paperwork associated with making the application can be avoided as the guardian is available to do so.
- Regulatory Compliance: The very first step is to comply with the SEBI guidelines so that all the regulatory compliance issues are addressed, and there are no penalties.
- Tax Implications: Gains or losses will have tax implications for minors, and a tax advisor should be consulted for detailed insights.
Risks and Allotment Dynamics
Market Risks
Involvement in IPOs poses inherent risks. The companies that have just listed in the market are likely to be volatile in performance, and the investor might get exposed to considerable fluctuations in the share prices. It is, therefore, imperative to analyze the company's fundamentals and market potential very deeply before applying.
Disappointment over Allotment
Due to the popularity of an IPO, oversubscription is common, and thereby, there is partial allotment or even nil allotment in favor of the applicants. The allotment solely depends on the demand as well as the random allotting system followed by the registrar.
Accuracy of Document
Accuracy of documents is essential. In case of discrepancies there are chances of rejections and a delay in the applications.
Minor account of India, through its guardians, can apply for IPO and participate in this finance market. It is definitely not rocket science, still requires proper documentation and all SEBI guidelines. So, no discrimination in the allotment from all the demat accounts; no bias of minor and major accounts.
But for parents, it is utmost to weigh the pros and cons with great care and to assess market fluctuations before investing in those products.
Disclaimer
Incorporating investment in the stock market as well as in IPOs poses risks. Assess every possible outcome, consult the best financial advisors and maintain proper compliance with applicable norms before investing.
By understanding the operation dynamics and abiding by regulatory frameworks, this could improve the experience and goals for the minors participating in India's IPO market.
