what is the eligibility to apply for an ipo?

SEBI-Mandated Eligibility Criteria to Apply for IPO

To maintain a fair and transparent IPO process, SEBI has set particular eligibility criteria for investors about how to apply for an IPO and what are the steps for a company to list in the NSE or BSE.

• Investor Category: Investors are broadly classified into three categories: Retail Individual Investors (RIIs), Non-Institutional Investors (NIIs), and Qualified Institutional Buyers (QIBs). Each category has its own allocation quota and investment limits in an IPO.
• Demat Account: Investors and traders must have a Demat (Dematerialized) account with a registered depository participant to hold the allotted shares in electronic form.
• Investment Limits: SEBI has set investment limits for different investor categories. RIIs can invest a maximum of ₹2,00,000 per IPO, while NIIs and QIBs have no such limits.
• Application Amount: The application amount must be paid in full at the time of submission. Partial payment is not permitted.
• Bank Account: Applicants must provide details of their bank account with internet banking. The account should be linked to their Demat account.
• Permanent Account Number (PAN): All IPO applicants must have a valid PAN card issued by the Income Tax Department.
• Age: An individual investor must be at least years of age.
• Formal Contract: In accordance with the national legislation, you need to be allowed to sign a formal contract.

 

NSE- and SEBI-Mandated Prerequisites for IPO Application

To apply for an IPO as an individual investor, you must meet the following fundamental eligibility requirements mandated by NSE and SEBI:

• UPI Mandate: In order to submit IPO applications, retail individual investors must use the Unified Payments Interface (UPI), per a directive from SEBI. This is meant to expedite the payment procedure while lowering the possibility of fraudulent transactions.
• Syndicate Member Registration: Registration with a SEBI-registered syndicate member is required for investors. This member can be a merchant banker, stockbroker, or depository participant. They serve as a point of contact for the investor and the business launching the IPO.
• IPO Application Process: Interested parties must adhere to the official application procedure, which usually includes completing an online or offline application form. It also includes attaching the relevant paperwork and sending the completed application together with the requisite payment.
• KYC Compliance: Strict KYC (Know Your Customer) regulations are in place. Investors' IPO applications require the submission of identity and address verification.

Grounds of Rejection of DRHP by SEBI

SEBI has the authority to reject a company's Draft Red Herring Prospectus (DRHP) for an Initial Public Offering (IPO) for the following typical reasons:

• Inadequate Disclosures: SEBI reserves the right to reject the DRHP if it omits important information about the company, its operations, financial statements, risk factors, and other pertinent elements.
• Non-compliance with Regulatory Requirements: The Companies Act and Issue of Capital and Disclosure Requirements of the SEBI Regulations must all be complied with by the DRHP. Any failure to comply with IPO eligibility may result in rejection.
• Lack of Credibility: SEBI can reject the DRHP if it finds problems with the credibility of the company, promoters, and directors. These problems include involvement in fraudulent operations, legal actions, or other misconduct.
• Unfair Pricing or Valuation: SEBI has the right to reject the DRHP if it finds that either the company's valuation or the proposed issue price is unwarranted or deceptive.
• Corporate Governance Concerns: Potential conflicts of interest, a shortage of independent directors, or inadequate corporate governance procedures can all raise red flags and result in rejection.

Conclusion

The standards of eligibility established by SEBI for initial public offerings (IPOs) are crucial in preserving the integrity of the financial markets. SEBI guarantees equal opportunities for all investors by enforcing the eligibility criteria. It is a must for investors and traders to fully comprehend and meet these qualifying requirements in order to have a smooth and successful IPO application process.