Why Your IPO Application Might Get Rejected: Common Mistakes Investors Make

Initial Public Offerings (IPOs) are an exciting chance to invest in a company right as it becomes publicly traded. It's tempting to dream of getting shares in the next big success and watching them grow in value. However, many hopeful investors are disappointed when their applications are rejected. This is not always bad luck; it's often because of mistakes that are easy to avoid.

This guide will show you the common mistakes that can get your application rejected and give you simple tips on how to apply for an IPO successfully. We will also explain some important ideas to help you become a smarter investor.

Technical Problems and Simple Errors: The Most Common Reasons for Rejection

Every IPO application is checked very carefully, and even a small mistake can get it rejected. This is often called a technical rejection in an IPO and is one of the most common IPO application rejection reasons.

The Golden Rule: One PAN, One Application

One of the most important rules is that you can only send in one IPO application per person. Your application is linked to your Permanent Account Number (PAN). If you submit multiple IPO applications with the same PAN, all of them will be rejected. Some investors mistakenly apply through different brokerage accounts with the same PAN, thinking it will help their odds. Unfortunately, this is a guaranteed way to be disqualified.

Accuracy is Key: Mismatched Information

Your details must be the same on all your documents. A common reason for an invalid IPO application is when information does not match. This includes:

• Incorrect PAN in IPO application: The name on your PAN card must be an exact match with the name on your bank account and your Demat account.
• Wrong Demat or Bank Details: A wrong Demat account number or bank details will cause a rejection. Also, make sure your Demat account is active, because inactive accounts can create problems.
• UPI ID Errors: If you apply using UPI, double-check that the UPI ID is correct and approve the payment request right away. Your application will fail if you don't approve the payment or if you enter the wrong PIN.

Strategic Mistakes That Can Hurt Your Chances

Besides simple errors, some planning mistakes can also lower your chances of getting shares, especially in a very popular IPO.

Understanding the Bidding Process

When you apply for an IPO, you need to decide the price you are willing to pay for each share. This is where many new investors get confused.

• Bidding Below the Final Price: If you bid a specific price and the final decided price (the cut-off price) is higher, your application will be rejected.
• The Power of the Cut-Off Price: To avoid this, investors can choose to bid at the cut-off price IPO. This means you agree to pay whatever final price is set. Choosing this option greatly increases the chances that your application will be accepted.

The Challenge of Oversubscription

An IPO oversubscription happens when many more people want to buy shares than the number of shares being sold. For example, if a company offers 1 million shares but gets applications for 10 million shares, the IPO is oversubscribed 10 times.

In this situation, the IPO allotment process for retail investors usually turns into a lottery to give everyone a fair chance. Even with a perfect application, you might not get shares simply because of the huge number of applicants. This is a main reason people don't get shares even when their application is correct.

How to Increase Your IPO Allotment Chances

While you cannot control a lottery for an oversubscribed IPO, you can take steps to improve your chances:

1. Apply Through Multiple Demat Accounts: You cannot use the same PAN more than once, but you can legally apply using the Demat accounts of different family members (each has their own PAN). This gives you more valid entries in the lottery.
2. Apply for a Single Lot in High-Demand IPOs: In a very popular IPO, applying for the minimum number of shares (one lot) gives you the same single lottery entry as someone applying for the maximum. A smart strategy is to apply for single lots from different family accounts.
3. Always Bid at the Cut-Off Price: This removes the risk of your bid being too low and getting rejected.

Beyond the Application: Smarter IPO Investing

Getting shares is just the first step. To be a successful investor, it's important to avoid common mistakes to avoid when investing in IPOs.

Do Your Homework: DRHP Analysis for Retail Investors

Don't invest just because there is a lot of excitement. The company's Draft Red Herring Prospectus (DRHP) is a very important document full of information about its business, finances, risks, and how it plans to use the money from the IPO. Doing your own DRHP analysis for retail investors helps you understand the company's core business before you put money in.

Understanding Market Indicators

• IPO Grey Market Premium (GMP): The GMP is the price people pay for IPO shares in an unofficial market before the shares are on the stock exchange. A positive GMP suggests there could be listing gains investing, which is the profit you make if the stock starts trading at a higher price than you paid. However, this market is not regulated and should not be your only reason to invest.
• Listing Gains Aren't Guaranteed: Trying to make a quick profit on the first day of trading can be risky. While some IPOs see big price jumps, others can start trading at a loss.

Summary: Your Checklist for a Successful IPO Application

Applying for an IPO doesn't have to feel like a lottery. By avoiding simple mistakes and understanding the process, you can greatly improve your chances of success. Here’s a quick checklist:

• One PAN, One Application: This is a rule you must follow.
• Double-Check Everything: Make sure your PAN, name, bank, and Demat details are correct and match each other.
• Bid Smart: Always choose the "cut-off price" option to avoid your bid being too low.
• Increase Your Reach: Use the separate accounts of family members to apply.
• Research is Crucial: Look past the excitement and study the company's basic business health.

By following these tips, you can go through the IPO process with more confidence and make smarter investment decisions.