What is an IPO?
IPO is the short abbreviation for Initial Public Offering. It refers to issuing company securities to the public for the first time. The primary purpose of IPOs is investments. It is a phase when a company, privately owned by investors, now raises capital from the general public.
IPO has been in practice in the equity market for decades, gaining immense popularity over time. Consequently, when companies raise money from the public for the first time as bonds, it is termed Debt or Bond IPO.
But, in the debt market, companies raise capital through the public issuance of bonds quite often, sometimes more than once a year. As per market response, every public bond issuance is termed IPO, which is strategically logical and precise. The successive issuance of bonds is entitled Public Issues of Bonds.
Why do Companies do Bond IPO?
Companies raise debt from investors in two ways – private debt placements or a Bond IPO. Such private placements are ideal for bigger institutional investors only. Hence, an individual investor do not have access to such issuances.
Not to mention, there are limitations implied on a company by the SEBI (Security and Exchange Board of India) on:
- High investment amount. Thus, the private placement market is for a big investor only.
- Total number of private placements annually
Companies usually do an initial public offering to mark certain individuals and generate capital/money from them. Since India has a very high savings rate, IPO Bonds strive to assign the owners of such savings into lucrative investments opportunities for development.
IPO for Bonds aims to tap into the different sources of capital that may be difficult to access. For companies, such retained investment is highly lucrative since it promises a supplementary capital source for the long term.
Benefits of Bond IPO for Investors
Bond IPO or debt public issues are generated to invite a potential individual investor who can obtain a host of benefits by subscribing to such investments.
Here is the list of the key advantages of Bond IPO for an investor:
1. High-interest Rate
A company usually offers high-interest rates to individual investors instead of institutional investors in Bond IPOs. As a result, individual investors gains more out of it.
2. Higher Allocation of Investment
The amount of bonds for individuals (in the HNI and retail category) is pre-determined in a Bond IPO. If the issue becomes successful, investors are guaranteed of higher allocation of investment they wish to make.
3. Small Minimum Investment
The primary benefit of an investment in Bond IPOs is that the investments in bonds start as low as INR 10000.
Individuals can use their savings to get stable and higher returns from bonds, instead of poor returns from Fixed Deposits. It is for this reason that such bond investments are ideal for individuals.
4. Secondary Market Liquidity
With the increase in the number of investors, the liquidity of bonds in the secondary market rises. It allows the IPO owners to sell their shares to buyers in such market, unlike illiquid complex debt products.
Note: Liquidity means how quickly or easily security is purchased and sold in the secondary market.
5. Extra Disclosures
In India, bond investments are regulated by SEBI. As per the rules of SEBI, companies must adhere to a certain processes of issuing and displaying all the information concerning disclosures. As a result, investors get more details regarding the issuer compared to private placements.
6. Better Pricing
Companies generate huge capital through public issues by maintaining transparent pricing for individual investors. The IPO has a constant price; hence an investor do not need to check several sources for confirmation.
7. Exchange Listing
As per the law in India, bonds must be listed on exchanges. It enables an investor to access daily performance updates from the particular company. Better monitoring of the portfolio enables better investment decisions.
8. Simple Application Process
Thanks to online processes, subscribing to bonds in India is very simple. No more detailed paperwork is needed. All that is required are personal details in a pre-filled form.
Payment Process and Allotment of Bond IPO
It is quite simple for individual investors. It can easily be done online, based on the size of the invested capital:
For applications below INR 5 lakhs, the disbursement can be done through UPI (Unified Payment Interface). It is an instant payment system developed by the National Payments Corporation of India.
The RBI regulates this disbursement system. With the help of UPI, instant money transfer between two different bank accounts is convenient and swift.
For applications exceeding INR 5 lakhs, the payments can be done through ASBA, Application Supported by Blocked Amount. It is an authorisation to restrict the application money present in the bank accounts from subscribing to a newly issued bond.
The allotment of bonds is primarily done depending on the categories provided below:
- Non-institutional Investors like trusts, company treasuries
- Retail Investors for applications below INR 10 lakhs by HUF or individuals
- Institutional Investors like mutual funds, banks, insurance companies, etc.
- High-Net worth Individuals for application more than INR 10 lakhs
Why Invest in IPOs, Share Offers, and New Bond Launches through Yubi?
Bond IPO is the most beneficial and easy way for individuals to invest money in the bond market. At Yubi, investors have the convenience of monitoring and buying bonds by following a simplified investment process.
Yubi is the one-stop shop to buy bonds and debentures for investors. At Yubi, individual investors have access to an extensive range of IPOs and are thrown open to a plethora of benefits like:
The annual charge for applying IPOs, bond launches, and share offers are available via Yubi at a very nominal charge. It is charged annually to all the financers.
We are engaged with almost every major IPO and share offer that is accessible to any potential financiers.
It is easy to apply for share offers, IPOs, or bond launches through the several user-friendly platforms at Yubi.
When your IPO application is cancelled, all the bids made in the application will be immediately rejected. However, applying on the closing date or before it is possible.
If the IPO application is cancelled after the funds are blocked by ASBA, within 48 hours, it will be released. If the investor does not receive it, connect with Yubi.
The funds are received post the cancellation of the IPO application, usually within 48 hours of the allotment. For those investors who still need their investment back, send the query to Yubi for assistance.