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Thursday, May 19, 2011

Retail Investors planning to invest in IPOs have a bit of good news coming their way with the market regulator Securities and Exchange Board of India (SEBI) announcing vide a circular that discounts being offered to retail investors in a public issue should be adjusted for at the time of filing the application itself

Many companies raising capital in the market, particularly Government-owned companies and PSUs, offer a discount to Retail Investors and Eligible Employees. However, it is to be noted that the discount is offered on the final issue price of the IPO or the FPO, which is generally fixed after the issue closes for subscription. Consequently, what happens is that although there is a discount declared for the Retail Investors, they still have to pay in or block the entire amount at the time of applying for the IPO or FPO. The discount is given at the time of allotting the shares and consequently, the extra amount is refunded (or released in case of ASBA). This, however, will not be the same with the aforesaid circular coming into picture. Retail Investors will now be able to avail this discount at the time of making the payment itself while applying in any IPO or FPO

This rule would be applicable on public offer documents filed on or after June 15, 2011. What the move would also mean for the Retail Investors is that now for the same amount of money, the Retail Investors would be able to buy slightly higher number of shares in an IPO or FPO

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