Is borrowing money to invest in IPOs worth it? Know what it costs, its hidden risks before going for financing for NSE, Jio, SBI MF IPOs

India’s primary market is preparing for one of its biggest seasons yet. The long-awaited listing of the National Stock Exchange (NSE), Reliance Jio Infocomm’s mega issue, and the initial public offering (IPO) of SBI Funds Management are among several marquee names set to hit Dalal Street, with many investors queueing up.

Popular IPOs often attract massive demand within hours of opening, leaving investors scrambling to maximise their applications. But not everyone has enough idle cash to put in a large bid.

This is where borrowing funds can help. The duration of the loan can be short, from merely a week to months, but it allows investors to borrow money specifically to apply for an IPO, without having to liquidate their existing investments or dip into their savings. “The upcoming IPOs can create one of the largest short-term lending opportunities seen in the Indian primary market in recent years,” says Jugal Mantri, Executive Director and CEO, Anand Rathi Global Finance.

The borrowing boom

The urge to borrow has grown alongside the retail investor flood into primary markets. “The number of demat accounts has increased from around four crore in 2020 to over 20 crore today,” says Prashasta Seth, CEO, Prudent Investment Managers.

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Unified Payments Interface (UPI)- enabled applications have made participation far more convenient, he adds. “The growing popularity of IPOs has also increased the tendency to use leverage, particularly in marquee offerings that are expected to witness strong oversubscription or listing gains.”

The logic is simple: popular IPOs get subscribed multiple times within hours, and a bigger application improves the odds of allotment. Borrowing lets investors bid larger without selling existing investments.

“With one of the largest IPO pipelines in Indian market history lining up, demand for capital to participate is naturally attracting greater attention,” says Kunal Valia, founder of research analyst StatLane.

The borrowing is concentrated at the top. “IPO financing providers, mainly NBFCs (non-banking financial companies), usually fund up to of the application amount for eligible HNI (high net-worth individual) investors, with borrowers contributing the remaining 20% as margin,” observes Mantri. “A significant share of applications in the big HNI category are financed using borrowed funds, particularly in marquee IPOs.”

Retail applications, by contrast, remain predominantly self-funded, though that too is shifting. “I have definitely seen more people pledging mutual funds to raise money,” says Rajani Tandale, Partner, 1 Finance.

Borrowing to invest in IPOs? Compare your options

Various borrowing routes

Banks and NBFCs offer short-term loans, called IPO funding or financing, structured around the IPO cycle itself. The money never reaches your hands. In this arrangement, the lender credits the sanctioned amount directly into an ASBA (application supported by blocked amount)-enabled bank account, where it stays blocked against your bid until allotment. During this blocked period, typically 7-10 days, you pay interest on the full amount borrowed. Once allotment happens, the unallotted portion is unblocked and flows straight back to the lender, and interest then runs only on the money actually used to buy your shares, until you repay, usually by selling on listing day. So if you borrow Rs.1 crore and get shares worth just Rs.5 lakh, you still pay interest on the full Rs.1 crore for the blocked week, and only after that on Rs.5 lakh. If you get no allotment, the funds simply return to the lender, but the interest for the blocked days is still yours to pay. Interest rates typically run between 8.5% and 14% a year, tenures last just 7 to 45 days, and margins range from 20% to 50%.

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Investors with existing portfolios often prefer loans against shares (LAS) or mutual funds (LAMF), pledging holdings instead of selling them. “Since these are secured loans, the borrowing cost is generally lower than dedicated IPO financing,” says Mantri. Lenders typically advance around 50-55% of the value of pledged shares or equity funds, 60-80% for debt funds and up to 90% for liquid funds, at rates of around 9-10% for tenures of 3-5 years. The catch: pledged units are frozen. “You cannot redeem them until the loan is repaid and the pledge is released,” explains Tandale.

Does mainboard IPO investing work?
A data study of 288 mainboard Indian IPOs between January 2023 and July 2026
Performance matrix
What if you had invested an equal Rs.100 in every one of the 288 IPOs at listing?

Extended internal rate of return (XIRR) is based on investing an equal Rs.100 into every one of the 288 IPOs at listing | Data as of July 3, 2026 | Source: 1 Finance

The unforgiving math

A study by 1 Finance of 288 mainboard IPOs listed between January 2023 and July 2026 shows why the excitement needs tempering (see graphic 2). As of early July, 41.3% of them, i.e. 119 companies, trade below the issue price. The median IPO sits on a gain of just 14.6%, less than half the 33.3% average, because a thin slice of blockbusters drags the mean up.

An equal-weighted portfolio of all 288 stocks returns 19.5% annualised. Remove the top-10 performers, and average return of the remaining stocks in the group falls to 13.9%. Remove the top-50, the other number collapses to 2.1%. That’s less than what a fixed deposit earns you, but you are still taking far more risk.

Tandale issues a stern warning. “People often focus only on successful listings, but the data tells a different story. If you remove the handful of best-performing IPOs over the last three years, overall investor returns fall sharply,” she says. “Many investors become overly optimistic and borrow money assuming every IPO will generate large listing gains. History suggests that is not the case.”

The break-even trap

Borrowing creates a fixed cost. IPO returns don’t come with one. “There is the potential capital loss if the stock lists at or below the issue price, and there is the financing cost, which must be paid irrespective of the stock’s performance,” says Valia.

His break-even arithmetic: borrowing Rs.2 lakh at 12% a year for seven days costs roughly Rs.460 in interest, so the stock must appreciate about 0.25% merely to recover the financing cost, before processing fees, Goods and Services Tax as well as pledge charges. Investors should count these components when evaluating the overall cost. That is for a week-long facility. For longer pledge-based borrowing, the bar rises steeply.

“If someone is borrowing at around 10%, they should expect at least 20-25% listing gains for the strategy to make sense,” says Tandale. “Otherwise, after accounting for borrowing costs and risks, the reward may not justify the effort.”

Hidden risks

The first is allotment risk: in heavily subscribed issues, most applicants receive partial or no allotment, yet the interest is payable regardless. The second is a weak listing. “The debt remains fixed while the value of the investment has already declined,” says Valia. An investor can lose their entire equity contribution and still remain liable for borrowing costs and repayment.

The third is a market correction while securities are pledged: the portfolio falls, the lender issues a margin call, and the investor must produce additional collateral or repay part of the loan. “Historically, Indian equity markets have experienced 10-15% corrections almost every year, even within long-term bull markets,” says Seth. “Financing costs continue regardless of market performance. Even temporary price declines can erode returns and force poor investment decisions.”

Who should borrow?

Borrowing works only when three things go right simultaneously: you receive an allotment, listing gains exceed borrowing costs, and the stock holds up after listing.

Miss any one, and leverage turns a seemingly low-risk IPO application into an expensive mistake. Valia notes that the perception of easy listing gains is survivorship bias; investors remember the blockbusters and forget the flops, compounded by recency bias in buoyant markets.

An easy way to skip the entire risk-return calculus: many mutual fund companies are themselves anchor investors in IPOs, picking up allocations before the issue opens to the public When these IPOs do well, the gains flow straight into the fund’s Net Asset Value (NAV) and are shared across all unit holders. So if you’re already invested in equity mutual funds, you’re likely getting a slice of IPO listing gains anyway, without needing to apply directly, pledge your holdings, or take on borrowing costs to chase listing-day pops.

The financial experts have a clear rule: borrowing should never replace disciplined security selection. A single IPO should be a modest portion of the portfolio, not a concentrated bet funded through leverage, and oversubscription is no substitute for fundamental analysis. Financing is a capital-efficiency tool rather than simply a means to maximise application size. For everyone else, in volatile markets, capital preservation matters more than chasing listing gains.