What Is The Process Of Selling IPO Shares?

Buying and selling are crucial for IPO (Initial Public Offering) investments. Once allocated, IPO shares are stored in your Demat Account. You must sell them at the right time to maximise gains. However, selling IPO Shares requires strategic thinking and planning. This article will guide you on things you should consider before selling, and how to sell IPO shares and make profits.

IPO is when a privately held company goes public by offering its shares for public purchase in a new stock issuance. Initially, a private company has a limited number of shareholders, restricted to only specific individuals. However, once a company goes public, all public investors can apply for shares and become shareholders.

Companies initiate IPOs to acquire new capital through public investors. There are two types of IPOs you can apply for – fixed price offering and book-built offering.

You can read more about investing in IPOs here.

Before we dive into understanding how to sell IPO shares, let us look at the factors you must consider before selling IPO shares.

• Risk: Most market-linked investments involve high risk, even IPOs. Consider the risk aspect of holding the shares and their impact on your finances before selling. 
• Tax Implications: Gains from IPO share sales are taxable. Understand the tax implications before selling your stock. If you sell shares on the first day or within the first year of listing, you will incur ordinary income tax on gains. However, selling one year after the listing will be more beneficial as you can optimise your tax bill better. 
• Emotional wellbeing: No matter how much you try and avoid, your emotional wellbeing goes for a toss when your hard-earned money is at stake. Whether to sell or hold on for more gains is entirely your call. But plan wisely to minimise regret. Avoid making decisions on the go. 
• Restrictions to sell: IPO shares have a mandatory lock-in period of six months from the day of allotment. The lock-in period is set to avoid the dumping of shares, which can cause the market value of the share to fall and create a situation of stock instability. It is advisable to follow the lock-in period and not opt for premature exit.   
• Suggestions from broker: Seek suggestions from a broker on how to sell IPO shares and when to sell. They have expertise in this domain and may provide valuable input. Most brokers suggest not to see before the lock-in period expires. However, they have no legal binding for you to follow. But premature exit may hamper your relationship with your broker.

Selling IPO shares can be a challenging task! You constantly think about whether to sell immediately or wait a little longer. Here are some selling strategies that can come in handy when selling shares.

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1. Selling on listing day 

Research shows most IPOs perform well on their listing days, influenced by timing and market conditions. Selling on the listing day is often better than holding for two to three years.

Pay close attention to the pre-market duration, as it indicates stock direction.

Selling on the listing day is a straightforward strategy, helping avoid future losses and freeing up funds for diversified investments.

2. Selling enough to cover your expenses

Selling only part of your stock is essential to recover your initial investment amount while keeping the other part as it is.

For example, if you got 100 IPO shares at ₹ 200, your total investment amount will be ₹ 20,000.

Now, if the market return rate is 40%, offering a price per share of  280, you can sell 71 shares of the 100 shares you hold to recover ₹ 20,000. Keeping the other 29 invested as it to earn gains further. 

3. Selling in instalments

Selling in instalments can benefit you as the selling takes place after the quarterly report of the IPO company is published. By analysing the report, you know whether the stock price will likely rise or fall in the coming quarter. You can also choose to sell your shares little by little every quarter in instalments. Selling in instalments gives you four opportunities to sell in a financial year. 

4. Selling 50% upfront and 10% each quarter 

Selling 50% upfront and 10% each quarter is another effective way to sell IPO shares in instalments. Selling 50% upfront gives you enough shares to cover your expenses and may provide you with extra money. While keeping the other ratio keeps earning returns that you can redeem every quarter.

Note: These selling strategies are entirely based on your financial standing.

Now that you better understand how to sell IPO shares, you will make a profitable sale from a stronger position.

Recent IPOs have created a buzz among investors, with many wanting to set up a Demat Account. 

HDFC Bank assists you to engage and participate in the stock market easily and comfortably. You can open a DEMAT and Trading Account with and avail of facilities that assist in margin trading, as well as currency and commodity trading. We help provide robust research services and enhance your trading experience with our partners' quick and efficient transfer mechanisms.

SEBI reiterated that customers creating new Demat and Trading accounts could nominate themselves or opt out of nomination.

So, are you looking to open a Demat Account? Open a Demat account with HDFC Bank today and earn reasonable profits along the way!