Hi @nithin since zerodha is a NBFC, is there any plans to introduce ipo financing? like how JM financials , bajaj finserv used to do?
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+1 Please do this for NRIs also. While NRIs are allowed to leverage, there seem to be no IPO financing options available at the moment. Even if I could get financing my pledging my Kite/Coin holdings, that would be amazing!!
Regulators have been wanting to discourage IPO financing. Over the last few years, multiple regulations have changed, which makes this unviable. What are the biggest changes?
RBI restricted the maximum NBFC exposure for IPO financing loans to Rs. 1 crore per borrower
Earlier, there was no upper cap on the loan amount for IPO financing. If an IPO was expected to have a 100x subscription, an HNI could maintain 1% of the subscription amount as their capital and take 99% of the application amount as a loan to ensure confirmed allotment for their own capital.
However, since this funding was without collateral, the regulator deemed the risk too much. Further, NBFCs would take a POA on the bank account where they would issue such funding. This was common industry practice which is also discouraged by the regulator.
Changes to allotment process
The HNI category used to have allotment based on pro-rata i.e. you would get confirmed allotment of your subscription amount divided by no. of times oversubscription in the IPO. However, now the HNI category, like retail is offered allotment on lottery basis. In other words, a higher subscription will not increase your chances of allotment. The incentive to take loans for IPO financing is also removed.
Note: Some investors still take loans of smaller amounts to be eligible to apply in the bHNI category (where the minimum amount is Rs. 10 lakhs). However, if the regulators start seeing this as a problem, IPO financing may completely stop.
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Ashneer bhai ko kaun samjhaye?
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Interesting. I understand why loans without without collateral are an issue, but what about IPO funding with collateral? Essentially Loan against mutual fund but for an extremely short tenure. I believe Loans against securities is already something Zerodha does, right? If you decrease the tenure from minimum of 1 year to 3 days, it can be used for IPO financing?
(Also please start this service for non residents also 
)
Another interesting alternative could be for Zerodha AMC (or any other AMC) to launch an IPO fund or ETF which would essentially just apply in IPOs for listing gains under the QIBs category to have a much better chance of allotment and simply sell once listing takes place. When there is a lack of IPOs, the funds can be parked in similar instruments to LiquidCase. Idk what SEBI will think of this, just some wishful thinking on my part.
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bhai, approach an NBFC, pledge collateral, take loan, maintain LTV.
Phir chaahe us paise se yacht kharido ya IPO buy karo, kya farak padta hai?
The IPO funding product was structured without collateral because of the high leverage involved. An HNI might have needed Rs. 100 crores to get an allotment worth Rs. 1 crore in case the category was oversubscribed 100x. Now, the HNI might not even have a networth of Rs. 100 crores in this case, and won’t be able to give adequate collateral.
In case you have adequate collateral for a loan, you can use it for any purpose. However, one should keep in mind that LAS loans should not be used towards securities markets since this leads to manufactured leverage in buying stocks.
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