When you apply for an IPO, your funds are temporarily held or blocked in your bank account. Once the IPO allotment is complete, the necessary funds are deducted for the shares you're awarded, and any remaining amount is unblocked. This process is essential as it frees up your money, allowing you to use it again.
The unblocking of IPO funds happens based on whether you receive an allotment or not. If you do, the exact amount for the shares is taken from your account, and the rest is released. For those who don't get any shares, the entire amount is unblocked.
Under the regulations, IPO refunds need to be initiated within four working days after the public offer closes. Should there be any delay, the issuer is required to compensate by paying interest on the amount due. This chapter delves into the nitty-gritty of how these refunds and unblocking processes work.
Reasons for Returning IPO Funds
The issuing company must return or unblock funds in several scenarios:
1. Non-Allotment
If you don't receive any shares or only a portion of what you applied for, the registrar or bank will unblock all or part of your funds accordingly.
2. Non-receipt of Minimum Subscription
Should the issuer fail to secure at least 90% of the offer, they must return or unblock the funds.
3. Failure to Obtain Listing Approval
Sometimes, the issuing company doesn't get the nod to list on the stock exchanges. In such instances, the money must be returned to investors.
4. Failure to Allot to Minimum Number of Allottees
For mainboard IPOs, if less than 1,000 prospective allottees emerge, and for SME IPOs, if less than 200, the issuer must refund the subscription money.
5. Failure to Allot 75% to QIBs
In a QIB route, if the company cannot allocate at least 75% of the offer to Qualified Institutional Buyers, all subscription money must be returned.
Timeline for Unblocking IPO Funds
Here's a table outlining when the refund process starts as per SEBI guidelines:
| Reason for Refund | Timeline |
|---|---|
| Non-Allotment | Within four days of issue closure. |
| Non-receipt of listing permission | Within four days of receiving rejection from the stock exchange. |
| Non-receipt of minimum subscription | Within four days of issue closure. |
| Minimum number of allottees not achieved | Within four days of issue closure. |
| Failure to allot 75% of QIB under QIB route | Within four days of issue closure. |
Generally, the refund initiation starts four business days after the IPO closes. Each IPO has its own timelines, which are detailed in the Red Herring Prospectus (RHP). For exact dates and more information, investors can check online for updates.
Initiation of IPO Refund Process
The IPO registrar is responsible for starting the refund process. They coordinate with banks or self-certified syndicate banks (SCSBs) to unblock accounts and issue refunds.
Steps in Initiating IPO Refunds
- The registrar, alongside the stock exchange and lead manager, finalizes the allotment.
- Banks are then informed to release funds in cases of non or partial allotments.
- SCSBs remove any hold on funds blocked through ASBA or UPI applications.
Refund Methods
Refunds can occur through different modes depending on the application method and investor category. Here's a quick look at the various modes:
| Mode of Refund | Instruction for Return | Investor Category |
|---|---|---|
| ASBA | Unblocking of the amount | · Retail Individual Investor (RII) · Non-Institutional Investor (NII) · Qualified Institutional Buyer (QIB) |
| UPI | Revoke the mandate | · Retail Individual Investor (RII) |
| Electronic mode | Direct credit via NACH, NEFT, etc. | · Anchor Investor |
What to Do If IPO Funds Aren't Unblocked
If your funds aren't released after the IPO or you're not credited within the promised time, here are the steps you can take:
- First, check with your bank about the refund or unblocking instruction.
- If the bank has no issues, reach out to the IPO registrar.
- Contact the registrar through email or visit their nearest office.
- As a last resort, contact SEBI if the issue remains unresolved.
- File a complaint with SEBI via the SCORES website or send them a physical application.
- For guidance or updates, you can call SEBI's toll-free helpline at 1800 266 7575 or 1800 22 7575.
If the issuer fails to process the refund on time, they might have to pay an interest rate of 15% per annum.
Page Glossary
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NACH (National Automated Clearing House): A system by the National Payments Corporation of India for handling high-volume electronic transactions, offering a unified solution for various ECS systems across the country.
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NEFT (National Electronic Fund Transfer): A platform facilitating bank-to-bank money transfers without visiting a branch. There's no transaction amount limit, though newly added beneficiaries often have a cap of Rs. 50,000.
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RTGS (Real Time Gross Settlement): A real-time fund transfer system for high-value transactions, with a minimum of Rs 2,00,000 and no upper limit.
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Direct Credit: Funds are transferred electronically via the ACH system directly into the payee's account, settling within one to two business days.
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QIB Route: Involves a book-building process where at least 75% of the issue volume is allotted to Qualified Institutional Buyers, essential if the issuer doesn't meet IPO profitability standards.
