Last Updated on July 4, 2025 4:16:50 PM by Vivek Makwana
Want to apply for IPOs without blocking your own funds? Learn how overdraft loans work, how to use them for IPO investment, and calculate exact interest in real refund & allotment scenarios. Smart guide for 2025 IPO investors In India!
🔍 What is an Overdraft Loan?
An overdraft loan (OD) is a revolving credit facility provided by banks that allows you to withdraw money even if your account balance is zero or insufficient.
You get a pre-approved limit (Rs50,000 to Rs10 Lakhs or more), and you’re charged interest only on the amount used and the number of days it’s used.
This is ideal for IPO investors who don’t want to block their savings or break their FDs.
⚙️ How Does Overdraft Work in Banking?
- OD is linked to your savings or current account.
- You can withdraw more than you have, up to the limit.
- Repayment is flexible — no fixed EMI.
- Interest is charged daily on the utilized amount.
- Once repaid, the limit is restored.
Example:
You get Rs2,00,000 OD limit from HDFC Bank. You apply Rs1,00,000 in IPO. If funds are unblocked after 7 days, you only pay interest for those 7 days on Rs1,00,000.
📈 Using Overdraft Loan for IPO Applications
Many investors use OD to apply for IPOs without locking their funds. This strategy gives liquidity and increases your chance of allotment by applying in multiple accounts (family/demat).
🧭 Steps to Use OD in IPO:
- Open IPO via ASBA using your OD-linked bank account.
- Funds are Blocked From Your Overdraft Limit.
- If IPO is Apply on Last Day And Not Allotted ➜ Refund in 2 Days (If Not Comes Any Holiday or Saturday/Sunday) If IPO Applying Last Day Is Friday, Then Refund Day Is Tuesday.So OD Inteerest Days is 4.
- If Allotted ➜ Sell on Listing Day and Withdraw Next Day.Then Interest Day
- Interest charged only for the duration money is used.
📅 Example 1: No Allotment – Refund Interest Calculation
Let’s take the actual IPO timeline:
- ✅ IPO Applied: Friday,13th June 2025
- ❌ Not Allotted
- 🕒 Refund Date: 17th June 2025
- 💰 Overdraft Used: Rs1,00,000
- 💸 Interest Rate: 11% per annum
- 📆 Days Used: 4 Days (Include Saturday and Sunday)
- If Not Comes Saturday and Sunday, Then Refund Day Is 2.
🔍 Interest Calculation:
➡️ You pay only Rs120.55 as interest for using Rs1 Lakh for 4 days!
✅ Smart Tip: If your funds are unblocked early, you pay less interest!
💰 Example 2: IPO Allotted – Sell & Withdraw Interest Calculation
Let’s Take Another Example:
- ✅ IPO Applied: Friday,13th June 2025
- 🎯 Allotment Confirmed
- 📈 Listing Date: 18th June 2025 (Sell Same Day)
- 💳 Withdrawal of Money: 19th June 2025 (Next working day after T+1)
- 💰 OD Used: Rs1,00,000
- 💸 Interest Rate: 11%
- 📆 Total Days Used: 6 days (13 June to 18 June)
🔍 Interest Calculation:
➡️ You pay Rs180.82 for 6 days of using Rs1 Lakh OD.
🧠 So Your Actual Profit = IPO Gain (Rs10,000) – OD Interest (Rs180.82) = Rs 9819.18.
📊 How to Calculate Overdraft Loan Interest
Calculating interest on an overdraft (OD) loan is quite simple, and it’s crucial for smart financial planning. Unlike regular loans, overdraft interest is charged only on the amount you use and for the exact number of days it’s used. The formula is:
Interest = (Utilized Amount × Annual Interest Rate × Number of Days Used) ÷ 36500
For example, if you used Rs1,00,000 from your OD limit at an interest rate of 11% per annum for 10 days, your interest would be:
(1,00,000 × 11 × 10) ÷ 36500 = Rs301.37
This means you’ll pay Rs301.37 as interest for borrowing Rs1 Lakh for 10 days. The interest is usually calculated daily by banks and debited monthly or quarterly. Always check your bank’s interest rate and keep track of usage days to avoid unnecessary charges. This approach helps you use the OD facility efficiently, especially for short-term needs like IPO applications.
✅ Benefits of Using Overdraft Loan for IPO
| ✅ Advantage | 💬 Description |
| Flexible Use | Use only what you need — no full loan disbursement |
| Interest on Usage Only | Save money vs. personal loan |
| Quick Refund or Profit | IPO refund or listing profit settles the loan |
⚠️ Risks & Precautions
- Higher Interest than FD or savings (8–14%)
- Must repay on time to avoid charges
- Avoid using full limit on multiple IPOs blindly
- May impact CIBIL score if unpaid
📋 Eligibility & Documents
✅ Who Can Apply for OD (Overdraft Loan ):
- Salaried (Rs30,000+ salary)
- Business owners with turnover proof
- Investors with FD, Mutual Fund, or Shares
- CIBIL score above 650
📄 Required Documents:
- PAN, Aadhaar
- 6-month Bank Statement
- Salary slips or ITR
- Collateral documents (if secured Overdraft Loan )
✅ Example: Dropline Overdraft for 1 Year
Sanctioned Limit: Rs1,20,000
Tenure: 12 months
Monthly Reduction: Rs1,20,000 ÷ 12 = Rs10,000
| Month | Opening Limit | Limit Reduced | New Available Limit |
| 1 | Rs1,20,000 | Rs10,000 | Rs1,10,000 |
| 2 | Rs1,10,000 | Rs10,000 | Rs1,00,000 |
| 3 | Rs1,00,000 | Rs10,000 | Rs90,000 |
| 4 | Rs90,000 | Rs10,000 | Rs80,000 |
| 5 | Rs80,000 | Rs10,000 | Rs70,000 |
| 6 | Rs70,000 | Rs10,000 | Rs60,000 |
| 7 | Rs60,000 | Rs10,000 | Rs50,000 |
| 8 | Rs50,000 | Rs10,000 | Rs40,000 |
| 9 | Rs40,000 | Rs10,000 | Rs30,000 |
| 10 | Rs30,000 | Rs10,000 | Rs20,000 |
| 11 | Rs20,000 | Rs10,000 | Rs10,000 |
| 12 | Rs10,000 | Rs10,000 | Rs0 |
💡 Key Points:
You can withdraw up to the available limit any month.
Even if you repay, your credit limit does not reset.
Interest is charged only on the used amount.
📌 Important Note:
You already know how IPO returns work apply, wait for allotment, and sell on listing day if shares are allotted. But when you’re applying for IPOs using an overdraft (OD) loan, it’s important to calculate whether you’re actually making a profit or not.
Let’s say you apply for an IPO using Rs1,00,000 from your Overdraft Loan limit. The shares get allotted, and you sell them on listing day with a profit of Rs2,500. However, if you kept the funds for 15 days and your OD interest rate is 11% per annum, you’ll pay around Rs452 as interest.
So your Actual Profit = IPO Gain (Rs2,500) – OD Interest (Rs452) = Rs2,048.
💡 Always calculate:
Final Profit = IPO Profit – OD Interest
This simple step helps you make smarter financial decisions. If the IPO return is uncertain or small, consider using your own funds instead of taking an Overdraft Loan loan. Borrow only when you’re confident about the listing gain.
🧾 Final Words
Using an overdraft loan to fund your IPO application in 2025 is a smart, flexible strategy especially for short-term usage. With clear interest calculation and fast refund cycles, it becomes a low-cost borrowing method if managed wisely.
Just remember to track your usage, calculate interest, and repay early to enjoy maximum benefit with minimum cost. 💡💰
📢 Disclaimer:
The content shared on this website is for educational and informational purposes only. Investing in IPOs (Initial Public Offerings) and using overdraft loans involves market risks. IPO investments are subject to listing gains as well as potential losses, and returns are not guaranteed.
Please consult with a qualified financial advisor, stockbroker, or your bank before making any investment or borrowing decisions. We do not provide personalized financial advice.
PaisoKaGyan.com and the author are not responsible for any financial losses, investment decisions, or overdraft charges that may result from the use of this information.
❓ Frequently Asked Questions
📌 Is overdraft loan better than personal loan for IPO?
Yes, because you only pay interest for the time and amount used, making it more flexible and cost-effective than a personal loan.
📅 How many days are funds blocked in IPO if not allotted?
Funds are usually blocked for 5-6 working days from the IPO closing date until the refund is processed.
💸 Will I pay interest even if IPO not allotted?
Yes, you will pay interest only for the number of days your overdraft funds were blocked until refund.
📈 Can I sell IPO shares and repay OD on same day?
You can sell IPO shares on the listing day, but the sale amount will be credited the next working day (T+1). So you can repay the overdraft after receiving the credit.
🏦 Which banks offer IPO funding through overdraft?
Major banks like HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and SBI offer overdraft facilities for IPO investments.
