Individual investors sell almost 50% of the money they invested in IPOs, within a week of listing, according to a research paper published on Monday by the Securities and Exchange Board of India (SEBI).

The paper titled “Analysis of Investor Behavior in Initial Public Offerings” explains investor decisions during an IPO.

SEBI also found that individual investors exited the IPOs when they found a gain on listing and held their investments when returns were negative, calling this the disposition effect. The term is used to refer to a behaviour where an investor prematurely sells assets that have made financial gains and while holding on to assets that are losing money, according to the research paper.

Mutual Funds tended to invest longer on IPO shares and sold just 3% within a week of listing. Banks, however, sold 79.8% in the same duration.

Almost 63% of retail investors are concentrated in Gujarat, Maharashtra and Rajasthan, with around 39% of them in Gujarat alone. Almost half the retail investors who had participated in IPOs had opened their demat accounts after the pandemic.  

Oversubscription in IPO by Non institutional investors (NII) had reduced after the SEBI and RBI had changed basis of share allotment from pro-rate basis to lottery basis, the markets watchdog found in its paper.