IPO segment on Zerodha

The IPO segment on Zerodha allows investors to apply for Initial Public Offerings (IPOs) using the UPI-based ASBA (Application Supported by Blocked Amount) mechanism. Zerodha supports IPO applications through Kite, Kite’s mobile app, and the Console back-office platform. Investors can also apply via the exchange IPO portals (NSE IPO and BSE Invest) using their demat account details.

IPO applications on Zerodha do not attract any brokerage charge. The only cost is potential allocation loss during the basis of allotment process if the issue is oversubscribed.

Regulatory framework

SEBI IPO regulations

IPOs in India are regulated under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), as amended. Key provisions include:

• Minimum subscription: An IPO requires a minimum subscription of 90% of the total offer size; otherwise the issue fails and applicants are refunded.
• Price band and lot size: The company (along with the Book Running Lead Manager, or BRLM) sets a price band. The ratio of upper to lower band must not exceed 1.2 times.
• Reservation categories: SEBI mandates reservation for Qualified Institutional Buyers (QIBs, typically 50%), Non-Institutional Investors (NIIs or HNIs, typically 15%), and Retail Individual Investors (RIIs, typically 35%). Employee and shareholder reservations are additional.
• Allotment: For oversubscribed retail categories, allotment is made by lottery. Each retail applicant who applied at or above the cutoff price is eligible for at minimum one lot, subject to availability.

UPI ASBA framework

UPI-based ASBA was introduced by SEBI and NPCI in 2018 as a faster alternative to bank ASBA. Under SEBI’s circular SEBI/HO/CFD/DIL2/CIR/P/2018/138, intermediaries (including Zerodha) can accept IPO applications through UPI. The process:

1. The investor enters the UPI ID in the IPO application form on Kite.
2. The intermediary (Zerodha) forwards the application to the exchange (NSE or BSE).
3. The exchange forwards the mandate request to NPCI’s UPI system.
4. The investor approves the mandate on their bank’s UPI app, which blocks (does not debit) the bid amount in the bank account.
5. On allotment, the blocked amount is debited only to the extent of the allotted shares. Unallotted amounts are unblocked within the stipulated timeline.

SEBI’s circular SEBI/HO/CFD/DIL2/CIR/P/2021/2480/1/M (2021) mandated that all retail IPO applications above a certain threshold process through ASBA-enabled channels, phasing out direct bank cheque applications.

IPO application process on Zerodha

Step 1: Access IPO section

Investors access open IPOs through Kite’s IPO tab or directly via ipo.zerodha.com. Open IPOs are listed with their price band, lot size, minimum investment, and subscription window dates.

Step 2: Enter bid details

The investor enters:

• Number of lots (minimum one lot; maximum 13 lots for retail to stay within Rs 2 lakh retail limit).
• Bid price within the price band, or selects “cut-off price” to bid at whatever price the company finalises.
• UPI ID (must be linked to a bank account with sufficient balance to cover the bid amount).

Retail investors are advised to bid at the cut-off price as it maximises allotment probability. Bidding below the final issue price results in application rejection.

Step 3: UPI mandate approval

After submitting the application, the investor receives a notification on their bank’s UPI application requesting mandate approval. The investor must approve this mandate within a limited window (typically 24 to 48 hours, though this varies by bank and NPCI’s processing). Unapproved mandates result in application rejection.

Step 4: Application verification

Zerodha’s IPO tracker (accessible via Console) shows the application status: pending mandate, mandate approved (amount blocked), or rejection reasons (if applicable).

Step 5: Allotment and refund

The basis of allotment is finalised by the Registrar to the Issue (typically Link Intime India or KFin Technologies) about six to seven working days after the IPO closes. Zerodha’s Console shows the allotment status once published.

• Allotted shares are credited to the investor’s demat account at CDSL within six working days of the IPO close date.
• Unblocked (unallotted) amounts are released within the same timeline.

Bid categories and limits

Retail Individual Investor (RII)

Applications totalling up to Rs 2,00,000 qualify as retail. The maximum application size is 13 lots in most IPOs (as the 14th lot would exceed Rs 2 lakh at the upper price band). Retail allotment uses a lottery system when oversubscribed; all applicants who received allotment get at least one lot each (subject to available shares).

Non-Institutional Investor (NII/HNI)

Applications above Rs 2,00,000 fall in the NII category. NII applicants do not receive lottery-based allotment; instead, allotment is proportional when oversubscribed. For IPOs where NII subscription exceeds 10 times, SEBI mandates allotment via a lottery among applicants eligible for at least one lot, with differentiated buckets for applications between Rs 2 lakh and Rs 10 lakh (bucket b1) and above Rs 10 lakh (bucket b2).

Zerodha’s standard brokerage account allows NII applications. Clients must use their own funds (ASBA mechanism). Margin Trading Facility (MTF) funds cannot be used for IPO applications.

Qualified Institutional Buyer (QIB)

QIBs (mutual funds, FPIs, banks, insurance companies) apply through a separate book-building process managed by BRLMs. Zerodha does not offer QIB services.

Cut-off price mechanism

SEBI’s ICDR Regulations allow retail investors to bid at “cut-off price,” which means the investor agrees to accept shares at whatever price the company finalises within the price band. Cut-off bids require the investor to block funds at the upper end of the price band. If the final issue price is lower, the excess blocked funds are unblocked after allotment.

Bidding at cut-off price is recommended for retail investors in popular IPOs because:

• Applications at specific prices below the final cut-off price are rejected.
• The cut-off mechanism eliminates price-discovery risk for retail applicants.

IPO listing and post-listing trading

Shares allotted in an IPO are listed for trading on NSE and BSE on the listing date (typically six to seven working days after IPO close). On the listing date:

• Pre-market (call auction) session runs from 09:00 to 10:00 IST.
• Normal trading begins at 10:00 IST.

Allotted shares appear in the investor’s demat account before market open on listing day. Investors can sell on listing day by placing CNC (delivery) sell orders on Kite. The sell proceeds are subject to STCG tax at 15% since holding period is less than 12 months.

Modification and withdrawal

SEBI’s ICDR Regulations permit applicants to modify or withdraw IPO bids during the subscription window. Zerodha allows modification and withdrawal through Kite’s IPO section. After the subscription window closes, bids cannot be modified or withdrawn. The mandate is revoked automatically for withdrawn bids; the block is released within two working days.

GMP (Grey Market Premium)

The grey market is an unofficial market where IPO shares are traded before listing. GMP (Grey Market Premium) is the premium at which IPO shares change hands in the grey market and is widely used as a signal of listing day expected gain. Grey market trading is unofficial and not regulated by SEBI. Zerodha does not participate in or facilitate grey market transactions. Zerodha’s Console provides official IPO data including subscription figures but does not display GMP.

SME IPOs

SEBI has a separate regulatory framework for SME IPOs listed on NSE Emerge and BSE SME platforms. SME IPOs:

• Have a minimum application size of Rs 1,00,000 (not Rs 15,000 as in mainboard IPOs).
• Do not require a minimum 90% subscription threshold (minimum 50% QIB subscription is required).
• Are allotted on a proportional basis, not lottery.

Zerodha supports SME IPO applications through Kite. Investors should note that SME shares are less liquid post-listing than mainboard IPO shares.

Tax treatment

Listing day gain

If shares are sold on the listing day or within 12 months of allotment, the gain is classified as STCG and taxed at 15% under Section 111A.

Long-term holding

If shares are held for more than 12 months from the date of allotment (not the date of listing), gains are classified as LTCG and taxed at 10% on gains exceeding Rs 1 lakh per year under Section 112A.

Allotment date vs listing date

The holding period for capital gains calculation begins from the date of allotment, not the date of listing. In practice, for most IPOs, allotment and listing occur within a few days of each other, making this distinction relevant only near the one-year boundary.

Comparison with other brokers

All SEBI-registered brokers offer IPO application through UPI ASBA. The key differentiators are:

• Application interface ease.
• Speed of mandate request forwarding to NPCI.
• Status tracking and notification quality.

Zerodha’s IPO tracker on Console is considered among the more detailed in the industry, displaying per-application status, mandate approval timestamp, and allotment details. Other platforms such as Groww, Angel One, and Upstox provide comparable functionality.

References

1. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended.
2. SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2018/138, UPI-based ASBA framework.
3. SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2021/2480/1/M, Mandatory ASBA for retail IPO applications.
4. NPCI, UPI ASBA operational guidelines.
5. Income Tax Act, 1961, Sections 111A and 112A.
6. NSE, IPO bidding platform operational guidelines.
7. BSE, BSE Invest IPO application process documentation.