Understanding IPO Block Amount and Bank Account Balance

In the context of Initial Public Offering (IPO), understanding the amount blocked from your bank account is crucial. This article will clarify how the blocked amount impacts your available balance and what happens when you submit a bid for an IPO.

What is the Blocked Amount in an IPO?

When you bid for an IPO, the amount you specify in the bid is typically blocked in your bank account. The blocked amount is set aside and cannot be used for other transactions until the IPO process is completed. This means that this amount is not available to you until the allotted shares are finalized and the funds are either refunded or allocated.

How Does It Affect Your Bank Account Balance?

Let's break down an example:

Assume:

Your bank account initially contains 1600. You bid 15000 for the IPO.

In this scenario:

Blocked Amount: 15000 (the amount you bid) Available Balance: 1600 - 15000 -13400

So, the amount visible in your bank account is 1000. The other 15000 has been blocked and is not available for other transactions. If you try to make a transaction that requires more than 1600, your bank may decline the transaction since it lacks sufficient funds.

Some banks might allow the IPO bid process only if you have sufficient funds in your account. If you do not have enough funds, your visible account balance will remain the same, and you will not be able to complete the IPO bid.

If you have enough funds, the blocked amount will be shown, and the available balance will reflect the funds set aside for the IPO.

Example Scenario

Consider another example:

You have 16000 in your bank account. You apply for a IPO and bid 15000.

The bid amount, 15000, will be blocked in your account. You can still use the remaining 1000, but the 15000 will not be available for other transactions.

In a specific bank like SBI, only the remaining balance will show after the IPO bid. So, after bidding, your visible account balance would be 1000.

Note that if you get an allotment, the blocked amount will be deducted from the total bid amount. If you do not get an allotment, the blocked amount will be refunded to your account on a specific date, typically 27th of the month, depending on the bank's policy.

Conclusion

Understanding the blocked amount and how it affects your bank account balance is essential when participating in IPOs. It ensures you have the necessary funds to complete your IPO bid and prevents any issues with insufficient funds.