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How does IPO funding work?

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What is IPO Financing?

The IPO Financing product is a Loan Facility offered for applying in Primary Market Issues (IPOs and FPOs). With this product Investors can apply for IPOs by investing only Margin amount (specified for each IPO separately), rest amount will be funded by ECL Finance Ltd.

What are the Benefits of IPO Financing?

Take advantage of investment opportunity with small margin investment i.e. Maximize gains on your existing funds available for investments.

Pay interest only for the period of actual utilization of resources.

Increase your chances of allotment and allotment size.

Easier and faster processing.

https://finance.edelweiss.in/Account/IPO.aspx42

 

Good for investors who have assets or investments other than liquid cash, that can be pledged for temporary loans from such companies.

Loans are provided by IPO financing companies from the application date to the listing date that help you apply for IPO's under the Non Institutional Investors category / HNI category.

Same like the intraday leverage provided by brokers, but with interest.

Initial Public offers (IPOs) are one of the rewarding investment opportunities available to investors in India. Good amount of profits can earned in a very short term by investing in IPOs. Let me first brief you on what is IPO funding and Parties involved to it.

IPO Funding or IPO Financing is a loan offered for applying in primary stock market by NBFC's. The investor pays only small margin for applying in IPO and rest amount is funded by the lender.

Many Non-banking finance company (NBFC) in India are involve in security based lending business. In most cases these NBFC's are part of a large stock brokerage firm. Some of these NBFC companies who are involve heavily in IPO funding are Sharekhan through Sharekhan Financial Services Private Limited, JM Financial through JM Financial Products Limited, Aditya Birla Money through Aditya Birla Finance Ltd, Axis Bank through Axis Finance Limited.

Now lets understand how IPO funding works.

Say Miss Usha wants to apply for an IPO. So she will pay a margin amount upfront to avail the loan. The loan margin will be calculated on case to case basis based on expected over-subscription of IPO. 

Say, for instance, the IPO issue is expected to get oversubscribe 10 times; the NBFC would ask for a 10 per cent margin (10%). If the issue does get oversubscribed 10 times, then of the 100 shares an investor applied for, he would be allotted 10 shares and balance application ASBA money gets unblocked which gets adjusted against IPO loan and interest thereon. If the loan remains outstanding even after ASBA unblocking then NBFC holds a lien on the allotted shares and investor needs to liquidate the shares on listing and from sell proceeds the balance loan gets repaid. Any sell proceeds over and above the loan repayments gets refunded to investor.

Hope this address your query.