Understanding the functioning of IPO Financing

IPO market in recent times has seen startling debuts with D-Mart entering the fray last year. The retail giant entered the list in a sparkling fashion which saw a spectacular gain on the debut day of its listing. The brand-aroused interest from investors in the primary market which led to a crazy jump in the capital mobilised through Initial Public Offerings (IPOs). This led to a boom in IPO financing as an increasing number of investors wanted to get their hands on the new market. IPO financing enables the investors to leverage returns with the help of an NBFC.

What is an IPO financing?

IPO financing is nothing but a loan facility offered to help investors make a sizeable profit in a short amount of time (6 to 10 days) by investing in issues including IPOs and FPOs. IPO investments help maximise profits by allocating a high amount of funds in the High Networth Individual (HNI) category, where allotments are made in proportion.

How does IPO financing work?

IPO financing, similar to other loan processes, requires a customer to pay a margin amount upfront to avail the loan. The margin of this loan differs based upon the expected over-subscription. For an investor looking to avail IPO financing, margin account can be through the deposited cash or through approved securities which are suitable based on the margin funds.

Let us understanding IPO financing with the help of an example:


Let’s say an IPO issue, in this instance, D-Mart, is expected to be oversubscribed by 20 times. In such case, the lender will require a 20% margin. If the issue gets oversubscribed by 20 times, then of the 200 shares that the investor invested in, 20 shares and balance application get unblocked, which is later adjusted against IPO loan.

Amount payment and additional charges:

One-time loan process charge requires to be paid along with the stamp duty charge for the loan agreement. Also, NBFCs tend to collect interest upfront. However, there are some financial companies such as Prabhudas Lilladher which do not charge loan processing fee. Additionally, they make sure that there is no minimum size of application conditions, etc. As a customer, you do not have to face any hassle, as Prabhudas Lilladher takes care of everything through an end-to-end process to help in smooth functioning.

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