Don't compromise on issue quality amid access to more funding

The Reserve Bank of India (RBI) has raised the ceiling for individual initial public offering (IPO) financing from @10 lakh to 25 lakh.

- HIMALI PATEL

This is intended to increase participation by providing investors with access to higher leverage for new issues. “The higher limit will enable larger applications without switching to non-banking financial companies (NBFCs) and allow funds to become recurrently available after repayment,” says Trivesh D, chief operating officer (COO), Tradejini.

How it works

IPO financing is a short-term loan provided by brokers, banks and NBFCs. Investors pay amargin, and the lender provides the rest.

After loan approval, customers deposit the margin amount. “Higher-risk investors or volatile IPOs attract higher margins,” says Shalibhadra Shah, group chief financial officer (CFO), Motilal Oswal Financial Services. “Ultra-HNIs contribute 1-2 per cent margin, smaller HNIs put in 15-20 percent, and retail investors about 40-50 per cent,” says Trivesh.