NOT TO WORRY: According to the new SEBI directive, the investors will get their refunds within 10 days. REPRESENTATIONAL PIC

If you are an investor facing a cash crunch owing to the long delays in Initial Public Offering (IPO) refunds, SEBI's latest directive comes as a blessing in disguise. In the present scenario, companies take between three to six weeks for the refund, however, according to the new directive, the refund time will be reduced to almost 10 days.

IPO mess

When a company announces an IPO, the investor needs to apply for the shares and pay the entire amount upfront. When the stock gets listed, the investor is intimated of the number of shares he has been allotted.
 
The remaining amount is refunded to him in due course (three-six weeks).

While this delay was never a reason for worry, the recent fall in the stock market has hit investors hard.

"People borrow and invest heavily in IPOs, hoping to repay the money when the stock is listed in the market at a premium price," a market expert said. But, with the market sentiment impacting the performance of IPOs, investors have never had it so bad in recent times. "It's a double whammy borrowing funds is difficult and there are delays in refunds," the expert said.

How the new system works

When an investor bids for the IPO shares, the amount that he needs to pay for the shares (as per the cut offs) will then be locked in his account. The amount does not get transferred to the issuer and hence the problem of refunds is reduced to half. If the investor is awarded some shares in the listing process, then only the amount that needs to be paid to the issuer will be released and the rest will remain in the investor's account.

In case of zero share allotment the entire amount is retained in the investor's account.