IPO Funds Unblocking Process
If you don't get an allotment in an IPO, the blocked funds in your bank account will be released according to the refund process.
When an investor submits an application for an IPO, the respective amount is kept frozen in his/her bank account. On allotment date, only the amount sufficient for the shares allotted is deducted, and the remaining amount is released.
The procedure of releasing funds is nothing but the de-blocking of the balance amount after allotment so that the investor is free to use it. As per rules, this refund or release should occur within 4 working days from the closing of the IPO. In case of delay, interest has to be paid as penalty by the issuer.
Reasons for Unblocking or Refund of IPO Funds
- No or Partial Allotment: When an investor does not receive shares or receives less than subscribed, the left-over amount is returned.
- IPO Fails to Reach 90% Subscription: The IPO is withdrawn and all money refunded.
- No Listing Approval: Funds are refunded when the stock fails to get approved for listing.
- Less than 1,000 Allottees: The IPO is nullified, and cash is refunded.
- QIB Allotment Deficit: If 75% is not reserved for QIBs in book-built IPOs, the entire amount subscribed is refunded.
IPO Amount Unblock Timeline
The table below shows the timeline for IPO fund unblocking as per SEBI guidelines:
| Reason for Refund | Expected Timeline |
|---|---|
| Application not allocated | Refund in 4 working days from the closing date of IPO |
| Listing permission denied | Refund within 4 working days of receiving rejection information |
| Minimum subscription not met | Refund within 4 working days from the closing date of IPO |
| Minimum number of allottees not fulfilled | Refund within 4 working days from the closing date of IPO |
| Below 75% reserved to QIBs (under QIB route) | Refund in 4 working days from the closing date of IPO |
The refund process for an IPO typically starts about four working days after the issue closes. But the date is different for every IPO and is stated in the Red Herring Prospectus (RHP).
How the IPO Refund Process Works
The registrar of the IPO initiates the refund process. They arrange with the stock exchange and the banks (SCSBs) to unblock funds from investors' accounts.
Steps in the Refund Process:
- The allotment is completed by the registrar, the exchange, and the lead manager.
- They inform the banks to release money for unallotted or part-allotted applications.
- The SCSBs remove the lien (hold) on the funds blocked under ASBA or UPI.
Refund Methods:
Refund is done in various modes based on the mode of application and category of the investor. The mode chosen depends on the route of application—either via ASBA or UPI.
| Mode of Refund | Instruction for Return of Funds | 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 | Dispatch of refund order to credit the Anchor Investor's bank account through NACH, NEFT, Direct Credit, RTGS | · Anchor Investor |
IPO Funds Not Unblocked
At times, investors can encounter glitches or delays where the funds are not unblocked following an IPO or the refund is not credited within the given period. In such a case, what you should do is:
- Check with Your Bank: First, check with your bank whether they have received the refund or unblocking instruction.
- Contact the Registrar: If the bank is problem-free, contact the Registrar. You can reach them through email or go to their closest branch.
- Contact SEBI: If the problem is still not solved, contact SEBI as a last resort. You can register a refund complaint on SEBI's SCORES website or give a physical application/complaint.
- SEBI Helpline: Alternatively, you can call SEBI's Toll-Free Helpline at 1800 266 7575 or 1800 22 7575 for advice, status or queries.
If the funds are not unblocked or refunded within the specified time, the issuer can be required to pay interest at a rate of 15% per annum.
Glossary of Terms
- NACH (National Automated Clearing House): An organized system created to consolidate and control bulk electronic transactions between banks and financial institutions. It aids in repeated payments and provides functions for mandate and dispute management.
- NEFT (National Electronic Fund Transfer): An application for money transfer between bank accounts in India that provides a smooth and hassle-free experience. It generally permits transactions with no lower or upper limit, although the upper limit per transaction is Rs. 50,000 for newly registered beneficiaries.
- RTGS (Real Time Gross Settlement): A mechanism to settle high-value transactions immediately, on a one-to-one transaction basis. RTGS minimum is Rs. 2,00,000 and there is no ceiling.
- Direct Credit: An electronic method of transferring funds by using the ACH system, wherein funds are credited directly to the account of the payee, with settlement taking place in one or two business days.
- QIB Route: Refers to the procedure where Qualified Institutional Buyers (QIBs) are allotted at least 75% of the shares in an IPO, usually through a book-building process. This route is adopted when the issuing company does not qualify under the normal IPO criteria.