Chirag Singhal

EARN 5%-10% on your investment in a period of around 10 days. Huh?

One can make such an earning. Here, we are talking about selling of IPO application forms in an off market transaction. One can earn 5-10% by selling of IPO application forms in an off market transaction in a period of less than two weeks.

When I say earning from IPO, many have in their mind that IPO is all about filling the applications to subscribe for the shares of the company and then either sell it when they are listed or keep it for long/short term investment. But the game isn’t just this. Let us go a way ahead of earning from an IPO.

What is selling of IPO application forms?

A person who holds the DEMAT account, files the application of company’s IPO, then sell the same application form to some other person, for money, irrespective that the applicant get the shares allotted by the company.

Now, let us break the definition and understand each of the thing stated above.

Generally, a person who files the IPO application form (note that one DEMAT account holder is eligible for one IPO application form) is an investor who (on allotment of shares by company) wants to trade in company’s shares in the stock market.

But what if that person doesn’t want to involve in buying of that company’s share and still wants to earn out of IPO?

Here we come to selling of IPO Application forms for money in an off market transaction.

Who sell it?

A person who is a DEMAT account holder files the application form and then sell it to another person in an off market transaction before allotment or listing of the issue.

Why another person buys it?

Because he doesn’t have a DEMAT account and so cannot legally file an IPO application but he thinks that the share’s listing price will be more than the issue price which will earn him handsome profit.

What decides the amount for buying such application form in market?

There is no regulatory authority for such kind of transactions, as they are not supported by law. The amount per application form is called“Kostak rate” and it is dependent on the public’s demand & interest for that company’s share in the grey market.

Is selling of IPO application legal?

No. It is not at all legal. SEBI doesn’t support any such transaction. All such transactions are purely cash transactions.

So, how does the whole process work?

The person applies for IPO by filling IPO application form. He then sell it in grey market to a person who needs such application form on the basis of Kostak rate prevailing in the market at that point of time.

On the allotment day the shares are allotted to the applicant in his DEMAT account. Now, the other person (who bought the IPO application) asks us to sell the shares in the share market either on the share’s listing day or in a very short span. The other person either enjoys profit or bears loss on such sell.

One can conclude after selling the IPO application form, actual DEMAT holder has to sell the securities when the other person(buyer of IPO application form) asks him to.

The whole transaction between those two persons are off market transactions and purely cash transactions.

On the  basis of past IPOs one can say that a person who is selling IPO application form earns approximately 5-10% on his invested money in the application form.

(Author do not support such trade and writing  of Article on this topic was just to make aware readers aware of such practice going on in the market)

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2 responses to “OFF Market IPO Application Sale- A way to earn Good Return”

  1. v. p. parmar says:

    What about the income tax on profit for selling within say 10 days?

    • Chirag Singhal says:

      Sir, the brokerage expense, short term capital gain has to be borne by the DEMAT A/c holder. Answer to your question is that the DEMAT A/c holder has to pay a short term capital gain tax @15% of the profit.

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