What is IPO? — Beginner's Complete Guide

What is an IPO?

An Initial Public Offering (IPO) is the process through which a privately held company offers its shares to the public for the first time by listing on a stock exchange. Companies launch IPOs to raise capital for expansion, repay debt, or allow early investors and promoters to partially exit their holdings.

Once listed, the company's shares can be freely bought and sold by anyone with a demat account through the stock exchange (NSE or BSE in India). The IPO price is determined through a book-building process where institutional and retail investors bid within a specified price band.

Key Term: Book Building

Book building is the process by which an underwriter determines the price at which an IPO will be offered. A price band (e.g., ₹100-₹110) is set, and investors bid within this range. The final issue price is determined based on demand.

Types of IPO in India

F

Fresh Issue

The company issues brand new shares to raise fresh capital. The money goes directly to the company for business purposes like expansion, R&D, or debt repayment. The total share count increases.

O

Offer for Sale (OFS)

Existing shareholders (promoters, PE firms, VCs) sell their shares to the public. No new shares are created and no money goes to the company. This is essentially an exit route for early investors.

M

Mainboard IPO

Listed on the main NSE/BSE platform. These are larger companies with stricter eligibility criteria, higher disclosure requirements, and typically a minimum issue size of ₹10 crore.

S

SME IPO

Listed on the SME platform (NSE Emerge / BSE SME). Smaller companies with relaxed listing norms. Higher minimum application amount (usually ₹1 lakh+), higher risk, but can offer substantial returns.

How to Apply for an IPO

1

Prerequisites

You need a Demat account, a linked bank account with UPI-enabled net banking, and a PAN card. Open a Demat account with any SEBI-registered broker like Zerodha, Groww, or Angel One.

2

Apply via ASBA / UPI

Log in to your broker's app or website. Find the IPO section, select the IPO, enter the number of lots, bid at the cut-off price (recommended for retail), and authorize via UPI mandate.

3

UPI Mandate Approval

After placing your bid, approve the UPI mandate in your bank's UPI app (Google Pay, PhonePe, BHIM, etc.) within the time limit. Your funds will be blocked (not debited) until allotment.

4

Allotment & Listing

After the IPO closes, allotment is finalized within 2-3 days. If allotted, shares appear in your Demat account before listing day. If not, your blocked funds are released. The stock lists on T+3 days.

IPO Process Timeline

DRHP Filing

Company files Draft Red Herring Prospectus with SEBI. SEBI reviews and provides observations within 30 days.

Price Band Announced

Company and merchant bankers set the price band based on valuations, market conditions, and peer comparison.

IPO Open (Day 1-3)

IPO opens for subscription. Retail investors, HNIs, and institutions bid for shares over 3 working days.

Allotment (Day 4-5)

Basis of allotment finalized. Shares allotted via lottery for oversubscribed categories. Unblocking of funds for unsuccessful applicants.

Listing Day (Day 6)

Shares listed and begin trading on the exchange. Listing price determined by market demand at open. T+3 from close.

Frequently Asked Questions

What does IPO stand for?

IPO stands for Initial Public Offering — the first time a private company offers its shares to the general public and gets listed on a stock exchange.

Why do companies go for an IPO?

Companies IPO to raise growth capital, pay down debt, provide an exit for early investors and employees, and gain public-market visibility. Listing also improves credibility with customers, lenders and partners.

How much money do I need to apply for an IPO?

In India, Mainboard IPOs need ~₹14,000–₹15,000 minimum (one lot). SME IPOs need ₹1,00,000 or more. In the US, retail minimums depend on the broker and are often $100–$1,000.

Can I apply for multiple lots in the retail category?

In India, you can apply for multiple lots as long as the total investment stays under ₹2 lakh in the retail category. Beyond that, you must apply in the HNI/NII category.

What happens if I don't get IPO allotment?

The funds blocked in your bank account (via ASBA or UPI mandate) are automatically released within 1–2 working days. No fees are charged for unsuccessful applications.

Should I bid at the cut-off price?

Yes — for retail investors, bidding at the cut-off price is strongly recommended. Bidding below the final price results in rejection. Cut-off means you accept whatever price is determined in the book-build.

Can I sell IPO shares on listing day?

Yes. Once trading starts on listing day, you can sell through your broker. Many retail investors do this to lock in listing gains, though holding longer often rewards fundamentally strong companies.