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Is there a risk involve in IPO Funding?

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Yes, there are risk involves as the investor may have to book significant looses when using IPO Funding.

Following are few scenarios where IPO Funding could be a risky bet:

  1. If IPO doesn't get listed at a high premium on listing day then investor either has to pay to the lender and hold the shares or sell it for loss.
  2. Investor allocated more shares than he expected. In case of positive listing, investor can make good profit but if it is other way then losses are significant.
  3. If IPO shares get longer time to list, investor has to pay the interest on the loan amount. This happens in few IPO's whose listing got delayed by 2 weeks to 8 weeks because of stay orders by SEBI, who governs the IPO Process in India.
  4. If no shares are allocated in IPO because of over subscription or application got rejected, the applicant still has to pay the interest on the loan.
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