IPO Refund Process: A Complete Guide for Investors

Learn about the IPO refund process, including why refunds occur, how they are handled through ASBA, the typical timeline, and what to do if there is a delay.

IPO Refund Process Explained: How and When You Get Your Money Back

Initial Public Offerings (IPOs)

Initial Public Offerings (IPOs) have become a lucrative opportunity for emerging businesses to raise funds from the public and investors who want to participate in the growth potential of those companies. Investing in IPOs offers potentially high returns, which is the primary reason why people get attracted to them. As a result, sometimes the number of applications exceeds the number of shares offered. Hence, it will become impossible to provide allotments for all those applicants.

Applicants who do not receive an allotment in the upcoming IPO will have their money refunded.

Let’s look at the IPO refund process and learn how and when the applicants get their money back after the allotment.

What Happens to Your Money After an IPO Application?

After the IPO application, your money will be processed through two phases. These are -

Phase 1: Blocking of Money

At first, the total amount corresponding to your bid will be blocked within your savings account. It occurs with the ASBA (Application Supported by Blocked Amount) system or UPI mandates for retail investors. Though the money becomes blocked within your account, you can't utilize it until the IPO allotment process is completed. The blocked funds assure your financial commitment until the IPO allotment finalizes.

Phase 2: IPO Allotment

The subscription period closed within a few days. Then the company and the BRLMs ( Book-Running Lead Managers) assess the subscriptions. If the IPO becomes oversubscribed, which means the number of shares applied is larger than the number of shares offered, then the IPO allotment process is initiated. The process is carried out based on a lottery system to ensure a fair distribution.

Initiation of Refunds: Why Do Refunds Occur in an IPO?

There are several reasons behind the refund of IPOs.

The most common reason is the exceeding of the subscription number rather than the number of shares available. So, in this case, not everyone who has applied would get an allotment. As a result, the applicants' money will be refunded or unblocked in their bank account due to the unallotted shares.
If the company or the BRLMs decides to withdraw the IPO due to unforeseen circumstances before the allotment, the applicants will also receive a refund.
In some rare cases, the IPO applications get rejected due to technical faults, and the applicants will be refunded automatically.
Sometimes the company may decide to reduce the size of the IPO after the subscription period but before the allotment. In such cases, a refund might be issued for the additional application money received.

The IPO Refund Process

The bank and the depositories, such as NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited), handle the refund process electronically. Here is the step-by-step breakdown of the process.

Finalization of allotment: After the closure of the subscription period, the company and the BRLMs finalize the allotment. It determines who will get how many shares. This process would take a few days.
Checking the allotment status:. The information will be available to the registrar of the IPO, the lead managers, and the NSE or BSE website. The applicants can check the status through their application number, PAN number, or client IV and DP (Depository Participant) ID.
Refund process initialization: At the time of allotment notification, the company and the registrar also initiate the refund process for the un-allotted applicants. The method incorporates instructing the bank to unblock the applicants' money in their bank accounts.
Proceeding with the unblocking of funds: After receiving the instruction, the bank releases the specified amount held on the investor's bank account. This way, the unblocking is completed. Now the funds are again available for the investors to utilize. This process is much faster than any physical refund. The entire process is conducted by ASBA (Application Supported by Blocked Amount).
Physical refunds: Nowadays, physical refunds are rare. In the cases where ASBA was not involved, the registrar will issue the physical refund. They will issue the refund through cheques. Finally, the amount will be dispatched to the applicants' registered address. This process is less convenient and much slower than the ASBA method.

Timeline for IPO Refunds

The Securities and Exchange Board of India (SEBI) has built a timeframe that all IPOs must adhere to. Also, it becomes vital for the applicants to understand the timeline for receiving their IPO refunds.

Here is a quick enclosure of the timeframe:

Day	Type of Activity
Day 1	The end of the IPO subscription period.
Day 2	Verification of applications and compilation of subscription data.
Day 3 or day 4	Finalization of the basis of allotment.
Day 4 or Day 5	Intimation of allotment status to applicants. Initiation of refunds/unblocking of funds. Credit of shares to the Demat accounts of successful allottees.
Day 6 or Day 7	Commencement of trading of the Listed IPO on the stock exchanges.

Factors affecting the Refund Timeline

Here are the common factors that affect the SEBI mandate timeline for the refund process -

Banking infrastructure
Weekend and public holidays
Technical issues
Mode of application (Applications made through non-ASBA systems will take a longer time to refund.)

What to Do If Your Refund is Delayed?

When an investor experiences a significant delay in the refund process, they must follow the strategies mentioned below -

Check allotment status: Cross-check and reconfirm that the share remains unalloyed and refundable.
Contact the registrar: The registrar is responsible for processing the refund. So, the applicant must reach out to the concerned team to inquire about the status of their refund. The registrar's contact details will be provided in the IPO prospectus and on the website where the allotment status is available.
Contact the lead manager: When the issue is not resolved by the registrar, the applicants should contact the BRLMs ( Book-Running Lead Managers). Their contact details are available in the prospectus, too.
Contact the bank: If the applicant has applied with the ASBA, they can contact the sponsoring bank to inquire about the status of the refundable amount.
Complaining with SEBI: If all the above-mentioned strategies fail, the applicants must complain with SEBI. For this, they should provide the necessary information about their application and the refund delay. SEBI has a dedicated platform named SCORES - SEBI Complaints Redress System to file complaints.

Stay Informed About Upcoming IPOs

The investors interested in participating in the Upcoming IPOs must stay informed about each factor related to the IPO. These include price band, subscription date, and the registrar of the issue. The website of the investment banks, reliable financial news sources like Kotak Securities, and SEBI's guidelines are valuable resources that help individuals stay informed about the investment market. These updates also help them to understand the IPO and the refund process well.

Conclusion

The IPO refund is a critical and systematic process, regulated by SEBI. It ensures that the applicants who did not receive any allotment will receive a refund promptly. With the advent of ASBA, the process becomes faster and streamlined. By understanding the refund process and timeline, the investors can participate in the IPO more confidently. Also, staying informed about the upcoming IPO, participants can take proper precautions and get a smooth investment.

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