From now on, retail investors looking to subscribe to an initial public offering (IPO) can simply pick up their smartphones and apply using the Unified Payment Interface (UPI) platform. Affle India’s IPO, which opened on Monday i.e. 29 July, became the first example of such an issue where retail investors placed their bids though the new UPI medium.
Market regulator Securities and Exchange Board of India (Sebi) earlier made it mandatory for retail investors to apply for IPOs only through the UPI route in order to make the investing process secure, simple and seamless.
UPI is basically an immediate real-time payment system that helps transfer funds between two bank accounts instantly through mobile phones. The introduction of the UPI facility for IPO subscription will eventually shorten the time between the closing of the issue and listing of shares to mere three days.
So how does it work? Till recently, a retail investor could invest in an IPO using the ASBA (application supported by blocked amount) facility offered by self-certified syndicate banks (SCSBs). Here, you needed to mention the name of your bank along with the account number. Upon receiving your application, your bank would block the amount equivalent to the value of shares you applied for. When the company finally allots you shares, then the amount goes out of your bank account and you get your allotted equity shares in your demat account.
The new system now mandates retail investors who have accounts with banks whose names appear on Sebi’s website to make UPI-based IPO application. If your bank is not live on the UPI, you may submit your application form with SCSBs, or using the facility of linked online trading, demat and bank account.
Under the new system, your IPO application form will have two unfilled parts pertaining to ASBA and UPI. If your bank is on the UPI list, you can skip the ASBA portion on your form and move to the UPI part. Mention the UPI ID as payment option. You will then receive a ‘block mandate’ request on your chosen UPI app. Accept this request by entering your UPI PIN (personal identification number). Upon acceptance of the request, the required amount is blocked. Depending on the number of shares allotted by the company to you, the funds are debited from the bank account.
If you do not have a UPI ID, you can still bid for an IPO. Your bank account number should be linked with your mobile number and you should have a debit card. With the help of these, you can activate your UPI ID on the bank’s app within minutes. You can also contact your bank’s customer care to help you create an ID.
However, any application made using incorrect UPI handle or using a bank account of an SCSB or a bank which is not mentioned in the Sebi list is liable to be rejected.
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