Borrowing to apply for an IPO
Some HNI applicants borrow money to place large IPO bids, hoping a small allotment on a big listing gain will cover the interest. It is a leveraged bet with real costs.
How it works
A lender, usually an NBFC, funds most of a large HNI bid for the few days between bidding and allotment, against a margin from the applicant. Interest is charged for that period, and money released after the allotment goes back to the lender.
The arithmetic
In a heavily oversubscribed issue, only a small part of a large bid is allotted. The interest is charged on the whole borrowed amount, so the listing gain on the allotted shares has to cover the cost on all of it. A weak listing turns it into a loss.
Things to know
SEBI and the RBI have tightened rules on IPO financing in recent years, and lenders apply their own limits. Small HNI applications at the minimum size are allotted by draw, so a larger borrowed bid does not improve the chance there. This is not something to do with money you cannot afford to lose.
Related guides
- IPO categories explained: retail, HNI (NII) and QIB
- How IPO allotment works
- Tax on IPO gains
- What is the HNI category in an IPO?
More on applying for an ipo
- How to apply for an IPO in India
- Can family members apply for the same IPO separately?
- The IPO UPI mandate, explained
- What the cut-off price means in an IPO
- How to modify or cancel an IPO bid
- Applying for an IPO through net banking (ASBA)
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Information, not investment advice. GMP is an unofficial grey-market indicator; figures come from public sources (InvestorGain) and may be late or wrong. Not registered with or affiliated to SEBI, the exchanges, the registrars or InvestorGain.