How to Open Demat Account and Invest in IPO? NEPSE Investing Guide S01E01

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You haven’t invested in the stock market of Nepal. But you have heard others talk about IPO and shares.

In this article, you will learn why IPO is so attractive in the Nepalese market. I will also make you ready to apply for IPOs and grab almost-sure profits.

All you need is a bank account, your citizenship certificate, and a couple of your passport-size photographs.

Why does an IPO almost guarantee a profit in Nepal?

If you did not know this already, IPO stands for Initial Public Offering.

Basically, a company needs more funds to grow its business. If the founders do not have enough money, they will request the public to invest their money in the company. This has to be done systematically by issuing an IPO.

Related:

Read this article to learn about the stock market in simpler words.

Read this article to learn more about an Initial Public Offering (IPO).

No matter the company, the rules of the Nepalese Stock Exchange is such that each company should issue IPO at Rs. 100 per share.

This means that the company might be worth more than Rs. 100 per share, but it must issue the IPO at Rs. 100.

This automatically means that those who buy at Rs. 100 will be profitable once the shares are traded in NEPSE because investors will ultimately raise the price to its real value (which is usually higher than Rs. 100.)

For example, I wrote this article on August 8, 2020. If you had bought 10 units of Ajod Insurance’s IPO with Rs. 1,000 a month ago, it would be worth Rs. 4,250 today. Your money multiplied by four times in just one month. Isn’t it so cool?

Since an IPO is seen as a sure investment vehicle to make a profit, investors like you flock to apply whenever a new IPO is announced.

For example, the IPO of Sadhana Laghubitta Bittiya Sanstha Limited which was announced in July of this year (2020) was oversubscribed by more than 16.50 times.

For Your Info: Instead of allotting more shares to a small number of investors, it is worthwhile to give a minimum number of shares to more investors. This makes the shares evenly distributed so that a handful of investors won’t be able to manipulate the company’s share price. This is why investors applying for an IPO mostly get 10 units shares.

IPO Application process Explained

You need the following to be able to apply for IPO in Nepal:

1. A bank account to pay for the IPO.
2. A Demat account.
3. A Meroshare account to apply for IPOs online.
4. A CRN Number for C-ASBA Facility.

In the simplest words, this is what you will do:

1. Use your bank account to open a Demat account.
2. Open a meroshare account to buy IPOs online.
3. Use your Demat account to get a CRN number. This connects your Demat and meroshare portal with your bank account.

1) A bank account to pay for the IPO.

I’m sure you at least have one bank account by now.

2) A Demat account.

Demat is a short form of “dematerialization.”

When you bought the shares of a company in the past, they gave you a physical share certificate in hardcopy.

However, physical share certificates can be damaged, lost, and stolen.

To prevent this, Nepal uses a Demat system to store the share certificates electronically.

A Demat account is like a bank account. Just like you store cash in your bank account, you store your shares in a Demat account.

There are many institutions that provide Demat services. It is compulsory for investors to have a Demat account to invest in IPOs and trade their shares in the stock exchange later on.

What is needed

You need to fill your personal details in the Demat account opening form. Don’t forget to take your original citizenship certificate and two passport size photos. You should be fine.

However, if you are making a Demat account from a broker company, I noticed that some stock broker companies also ask for your bank cheque and electricity bill of your residence. Although you can negotiate on the electricity bill part, they are really strict on the cheque.

Either you take a cheque with you as well or make your Demat account from a bank.

I made mine from Prabhu Capital because they were offering to make Demat accounts for free. All they needed was a copy of my citizenship card and a photo.

Your DP service provider will give you your Demat number after it processes your application.

Note that you will link your bank account with your Demat account by mentioning your bank name, branch, and account number in the form.

You can open a Demat account from one of these institutions.

3) A Meroshare account to apply for IPOs online.

This step can be done while you make your Demat account. The Demat Account Opening Form will also have a Meroshare account opening form attached to it.

If you do not see the meroshare account opening form, simply ask for one.

Note that this is not a compulsory step. However, if you want to apply for IPOs from your home by simply logging in online, meroshare is the online platform to do so.

Once you submit the Demat and Meroshare account opening form, you will get an email from meroshare. The email contains your login id and password to log into your meroshare online platform.

However, even though the mail has a unique password, your first-time password is 12345. This is common for all users.

Once you log in, they will let you change your password.

There are only limited features in the meroshare portal so you should be able to navigate your way through.

4) CRN Number for C-ASBA Facility

Another step that has really made buying IPOs easy is the ASBA system.

The full form of ASBA is Applications Supported by Blocked Amount.

In simple words, although you have to pay while applying for IPOs, the ASBA system will allow you to apply for IPOs without sending any money.

Let’s say you apply for 10 units of shares in the IPO of a company. Since each unit share costs Rs. 100, you are applying for the 10 units worth Rs. 1000.

In ASBA system, Rs. 1000 is blocked from your bank balance as the payment for the IPO. Note that I said “blocked,” not “sent.”

This means that you cannot use this Rs. 1000 from your bank balance after you apply for an IPO. However, in case you do not get the 10 units, your thousand rupees is simply unblocked in your bank balance and you can use it as you like.

All this happens automatically and you do not have to worry about sending them money or requesting for refund if your application is not selected.

C-ASBA

Irrespective of from where you make a Demat account, you will be included in a common ASBA system, called the C-ASBA system.

To do this, you need a Centralized – ASBA number called the CRN number.

After you get your DEMAT number (also called BOID), simply go to your bank and fill another form for CRN number.

Enter this CRN number inside the Meroshare platform where it says so.

You are set now.

Wrap Up

To summarize, here’s what we did:

1. Use your bank account to open a demat account.
2. Open a meroshare account to buy IPOs online.
3. Use your demat account to get CRN number. This connected your Demat and meroshare portal with the bank from where you will pay for the IPO.
4. Now, if you apply for an IPO online from meroshare, the particular amount will be blocked from your bank balance.

Make sure that you do not apply for the amount that is not already in your bank balance. That would be dumb.

Congratulations! Welcome to NEPSE!