Will Zerodha provide this facility?

I have met many people caught in ipo frenzy, some making profit, some regretting having lack of funds to take advantage of them. Retail investors face mainly 2 types of problem due to dearth of funds available with them.

  1. Lack of funds when multiple IPOs appear in short time frame.
    2.Lack of funds when retail investors wants to make multiple applications for an IPO due to it’s attractive valuation.
    I think this is where business opportunity could lie.
    Wherein Zerodha would provide credit facility for a short term period and these funds could be only used for applying IPOs for a small fee/ Interest. Amount could be recovered
    1.In case of allotment- After selling shares on listing date.
    2.In case of non-allotment- immediately after unlocking.
    Only risk involved here would be as credit given is unsecured, if shares get listed at discount relative to IPO price. Which could be insured, I guess.

I don’t know Administrative hurdles involved in this in terms of license work, I just thought of win win scenario.
Please feel free to comment viability of this idea and possible hurdles in Implementing.
@nithin
@siva

Zerodha can’t fund client accounts, I mean broker is not allowed to, NBFC should do but it may ask for collateral to do so. Alternatively users can go for LAS( loan against shares), give shares as collateral and take loan on that.

1 Like

I had read that some NBFC do provide IPO funding but those products aren’t tailored for retail customers as the minimum amount being lent out is very high (like for example, check this offering) -

Also, in January 2021, RBI has proposed introducing limits on NBFC in regards to IPO financing (Discussion Paper on Revised Regulatory Framework for NBFCs - A Scale-Based Approach) -

The proposed limit (of 1 crore per person) might not have any effect on any potential product offering tailored for retail customers but it seems the regulator is likely worried about such excessive IPO financing. This can be seen from the subscriptions numbers for the HNI category in some of the early-2021 IPOs (taken from the above-referenced BloombergQuint article ) -


Also, a likely problem with such kind of offering is that retail investors have much fewer chances of getting allotment in case of oversubscription compared to the HNI category (whose allotment happens on a proportionate basis, refer to this thread). Even for HNIs that utilize IPO financing, the breakeven point for their investment requires a bumper listing of the IPO (for example, check this tweet sharing a rough breakeven price for the recently listed Shyam Metallics IPO for loans taken at different interest rates).

When I had an account with HDFC Securities, I had pledged my long-term script holding to create an overdraft account. I could access it with the same login password for my savings bank account and I could easily transfer money between the overdraft account and savings account as and when i want.

There, it was possible to transfer funds from overdraft account to the savings account and then apply for IPO. Every day at midnight, the overdraft account would calculate the daily loan interest amount @ 10.2% p.a. interest rate and adds it to my overdraft account dues. Once the IPO is allotted, upon listing you can sell the shares and transfer it back to the overdraft account, along with a small interest amount to settle the dues of the overdraft account.

It was quite handy as you pay a small amount as interest for those couple of days only when you borrow from the overdraft account.

I think such facilities are provided with a full-feature bank broker only.