How to Apply for a Demat Account for IPO Funding in India

While preparing for an Initial Public Offering (IPO), it is advisable to open a Demat account to facilitate IPO applications and funding. A Demat account, or dematerialised account, represents an investor's share holdings in an electronic form. However, a Demat account alone does not block or transfer funds for an IPO application. The payment for an IPO application is processed through the ASBA (Applications Supported by Blocked Amount) or UPI-based ASBA process.

Preparing for an upcoming IPO? If you do not have a Demat account yet, you can review the requirements and account-opening process through Demat account opening service before beginning your IPO application.

This article will guide you on opening a Demat account for IPO funding and the documentation required. This will also cover the process of online KYC, locating your DP ID and Client ID, and how to make use of these while applying for an IPO.

Why do you need a Demat account for IPO funding?

A Demat account holds shares in the electronic form. Investors apply for shares offered by a company during an IPO at a price or in a price range stipulated by the company. If the application is successful, the shares are allotted electronically to the investor’s Demat account.

Therefore, an active and correctly mapped Demat account is important while applying for an IPO. The applicant’s name, PAN and depository account details must match with the records with the depository and details submitted in the IPO application. Incorrect and mismatched details may result in rejection of application.

A Demat account is different from a trading account. A Demat account holds securities while a trading account is used to place buy and sell orders through a stockbroker. Depending on the provider, these accounts may be opened together or separately. If you are new to these terms, please read explanation of the difference between a Demat and trading account.

Demat account, ASBA and UPI: Understand the difference

One of the most common misunderstandings among first-time IPO applicants is that a Demat account is where IPO application money is kept. This is not how the process works. The Demat account and the payment mechanism perform separate functions.

Under ASBA, the application amount is blocked in the applicant’s account rather than credited to the issuer. If shares are allotted, the amount payable for allotted shares is debited. If no shares are allotted, the blocked amount is released as per the process in force.

If the retail application made through UPI is eligible, an authorization mandate is sent to the applicant. UPI is a payment authorisation route within the ASBA framework and does not remove the requirement to have correct Demat details. Further details regarding ASBA are provided in the SEBI Investor guide to applying through ASBA and the NSE ASBA procedure information.

Documents required to open a Demat account

Before starting your application, keep the identity proof, address proof and bank details, if any, required to be submitted, ready. Exact documents required may differ based on the depositaries, applicant’s status and the verification method available.

• PAN: This is an important identity and tax detail used in the opening of securities accounts and applications for IPOs.

• Identity and address proof: Aadhaar, passport, voter ID or driving licence may be accepted, depending on applicable KYC requirements.

• Bank details: the DP may ask for a bank proof, e.g. cancelled cheque or some other proof accepted by it.

• Photograph and signature: recent photograph and electronic or digital signature.

• Mobile number and email: used for OTPs, account communication and transaction alerts.

Aadhaar-based online KYC requires the mobile number linked with Aadhaar for verification and OTP. However, other verification options may be offered by DP, and therefore, you should strictly follow the actual document check list and not assume other DPs have the same process.

How to apply for a Demat account for IPO funding: Step-by-step process

Step 1: Select a Depository Participant

Opening a Demat Account is a pre-requisite to trading in the stock market. A Demat Account is opened through a Depository Participant (DP), an intermediary registered with a depository. In India, the two main depositories are the National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL).

Before you decide on a provider, assess its registration status, features of the services offered, charges, terms and conditions, channels of support, and other details. Familiarize yourself with the account terms and conditions to know if it is a Demat Account or a combined Demat and Trading Account. You can get a fair idea about the available options in the market from the SEBI Investor overview of securities market accounts.

Step 2: Complete the online account-opening form

Go to your selected DP's website or authorized account opening channel, and click on the individual account option. Enter your name, date of birth, PAN, mobile number, email ID and residential address. Ensure the details are accurate, as a small difference or mistake can lead to verification issues.

Step 3: Complete KYC verification

KYC is the process of verification of your identity by an intermediary. Depending on the DP, the verification can be done through PAN, document upload, Aadhaar, Bank verification and video/in-person meeting.

Follow instructions on the official account opening website or platform. Do your OTP and e-sign if needed and never ever disclose your OTP or account access credentials to any person. The DP may ask you to do an updated/new KYC if your existing KYC is insufficient or old and they may put a hold on account activation.

Step 4: Provide and verify bank details

Bank details are to be submitted based on the request of the DP. The account may be verified through a penny-drop or other permitted methods, and a bank document may be requested to be submitted for verification. Check the account holder’s name and bank details before submitting. The bank account to be used for blocking funds for IPO should meet the requirements of the application route. Hence, filling in bank details for a Demat application does not complete the payment setup for IPO.

Step 5: Review the declarations and e-sign

Check your name, PAN, address, bank account, and nomination details on the account opening form, tariff schedule, terms and declarations, and check Digital Signature or last step of verification. Do not sign blank forms and retain the Application form and Acknowledgment provided by the service provider.

Step 6: Wait for activation and confirm the details

After submission by the DP, the verification process begins and time taken also depends on quality of supporting documents and process of Service Provider. So, you should not be under the assumption that your account is active just because your form has been submitted. Once active you have to login to the official site and check whether account is in the name of the account holder and PAN is also correct.

Want to initiate the account opening process? You can review details and requirements on online Demat account Opening page and then submit your application.

What are DP ID and Client ID? How do you find them?

DP ID and Client ID are identifiers used to identify a Demat Account. You may be required to enter these details while filling up the IPO application form based on the application platform and depository.

• DP ID: Identifies the Depository Participant.

• Client ID: Identifies the investor account with that Depository Participant.

• Demat account number: Complete account identifier, the format of which is dependent on whether the account is opened with NSDL or CDSL.

In case of a CDSL account, the Demat account number is usually a 16 digit Beneficiary Owner Identification Number (BO ID). In case of an NSDL account, the Demat Account number is usually a combination of the DP ID and Client ID. The details may be found in the account opening confirmation/email, broker mobile application, account profile/holding statement. In the absence of confirmation from the Depository Participant, do not attempt to interchange or rearrange digits to arrive at the DP ID or Client ID.

How to use your Demat details when applying for an IPO

After opening your Demat account, you can use the details while applying for an IPO through a permitted broker or bank. Different platforms may have different application interfaces but the broad details to be filled in are as follows.

1. Check the IPO details: review the issue dates, price band, lot size, investor categories and application conditions in the offer documents.

2. Select the application route: Select an available ASBA route, such as a bank’s net banking ASBA or an eligible UPI-based route for retail investors.

3. Enter applicant details: Enter your PAN and other required details, and select the correct investor category.

4. Enter Demat details: Select the depository and enter your DP ID, Client ID or complete your Demat account number in the requested format.

5. Enter bid details: Enter the permitted lot quantity and bid price in accordance with the issue conditions.

6. Complete fund authorisation: For UPI-based ASBA, enter a valid UPI ID and approve the mandate in time. For bank ASBA, follow the bank’s blocking process.

7. Save the acknowledgement: Keep the application number and check the status using the relevant portal.

Before submitting, verify that the name, PAN and Demat details are in sync with the records held by your DP. For joint accounts, the applicant names and their order must conform to the issue conditions and depository records. SEBI IPO application guidance emphasizes the need to have an active depository account and matching applicant details.

Common mistakes that can affect an IPO application

• Entering an incorrect DP ID or Client ID: double check that you've entered all the details correctly and check for spelling mistakes.

• Using mismatched PAN or applicant details: the name and PAN should be the same as in the relevant records.

• Applying before account activation: ensure that your Demat account has been activated.

• Ignoring the UPI mandate: even if you’ve submitted your application, you may still need to authorise the UPI mandate.

• Insufficient available bank balance: ensure that you have sufficient balance to block the funds for the IPO application.

If you are not familiar with the IPO application process, please refer to how to apply for IPO funding in India article for more information. You can also check what IPO funding means and how it works for information on the difference between an ordinary application and funding.

Can you apply for an IPO without a trading account?

A trading account and Demat account are used for different purposes. There could also be differences in IPO application channels and eligibility requirements. To be sure, check the requirements of the bank, broker or other authorized intermediary you wish to use. You cannot assume that a trading account takes the place of a Demat account if application requirements involve depository details. For more information about a trading account, see information about equity trading account.

Before your next IPO: A practical readiness checklist

• Demat account opened through a recognized, registered DP, with KYC and PAN verified.

• Account activation is complete, and your DP ID, Client ID or Demat account number is saved.

• Your name and PAN are checked for consistency.

• Your bank account is eligible and ready to be used, along with UPI where applicable, to block funds.

• You have reviewed the IPO dates, bid details and instructions for applying.

If you still need to open an account, review the Demat account application requirements before beginning the process, and never share passwords, OTPs or sensitive login credentials.

Conclusion

Opening a Demat account before an IPO enables first time investors to get used to the process of credit of shares. The main steps are choosing a depository participant (DP), completing KYC, verifying your bank, ID and other details, confirming account activation and saving your DP ID and Client ID. Alloted shares are credited to your Demat account. UPI-based ASBA or ASBA is used to block funds.

IPO applications are subject to conditions, rules, bid details and allotment. An active Demat account does not guarantee an IPO allotment. This article is for learning the basics of the equity market. Readers interested in learning more can check share market brokers in india and InvestEdge360. This article is for general education and should not be treated as investment advice.