Saturday, July 20, 2013

Pushing up your banding when applying for an IPO

When applying for an IPO, many investors may want to apply for a higher banding as the actual number of units allocated is typically lesser than what you applied for. I have talked about this in greater depth in a previous post.

So how can we push up our banding when applying for the IPO?
My simple strategy is to "borrow soldiers". In this case, the "soldiers" mean money.  One of my rules in investing is never to borrow money for investing. So why am I contradicting myself here?

By "borrow soldiers", I mean to "borrow" from your own CPF monies. If you have an CPF investment account, you can invest up to 35% of your ordinary account (OA). During the balloting of the units for the IPO, the amount you applied is based on your cash plus cpf. This strategy only applies to IPO which allows you to invest your CPF as well.

For example, if you have enough cash to apply for 11 lots. This alone will qualify you under a typical band of 10-19 lots. However, if you apply along with an additional 10 lots via CPF, you will fall under a higher band of 20-49 lots.

Where will the units be credited upon successful allocation?
Based on the results I have observed so far, it appears that cash has priority over CPF. This means that any units will go to your cash (CDP) account first. Any remaining units will go to your CPF investment account.

One can temporarily push up to a different banding when applying for an IPO. However, there is a chance where you may be allocated units to your CPF investment account as well. Investors should evaluate if they should use this strategy under the worst case scenario where they are allocated 100% of what was being applied. Any additional shares from a new counter held in the CPF investment account incur quarterly charges with the agent bank.

For more info on investing with CPF:

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