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When a company decides to raise funds from the public and list its shares. For many beginners, this is their first step into the share market, so understanding what is IPO and how an IPO works and why companies choose to launch IPO becomes important.
In this blog, we’ll break down what an IPO is, IPO meaning, the process a company follows to get listed and the basic eligibility requirements.
What is an IPO?
IPO, or Initial Public Offering, is the point where a private company decides to invite the public to become shareholders for the first time. Until this stage, the company is usually funded by its founders, early employees and a few private investors. But when the business grows and needs larger capital, whether for expansion, new projects, reducing debt or strengthening its balance sheet, it turns to the public markets.
Launching an IPO brings two major changes. First, the company raises fresh funds from investors. Second, the company’s shares begin trading on a stock exchange, which allows anyone to buy or sell them freely. This transparency brings the company under stricter regulatory and disclosure requirements, which is why only businesses with stable financials and proper governance typically reach this stage.
Stock exchanges also require a minimum portion of the company’s shares to be available for public trading. This ensures enough liquidity for investors and prevents the price from being influenced by only a few shareholders.
Advantages of Investing in IPO
Here are some benefits of investing in IPO:
- Early entry opportunity: You get a chance to invest in a company before it lists on the stock exchange.
- Possible listing gains: If demand is high, the stock may list at a higher price than the issue price, giving quick returns.
- Long-term growth potential: Strong companies can deliver significant returns over the years if their business performs well.
- Transparent pricing: IIPO price band is clearly disclosed, helping investors understand the valuation upfront.
- Regulated process: IPOs go through SEBI scrutiny, which adds a layer of safety and transparency for investors.
- Access to emerging companies: IPOs allow you to invest in new or growing businesses that are opening up to public investors for the first time.
Disadvantage of Investing in IPO
Here are some disadvantages of investing in IPO:
- High risk if fundamentals are weak: Not every company that lists will perform well after the IPO.
- No guaranteed listing gains: Some IPOs list below the issue price, leading to immediate losses.
- Limited information: Investors rely mostly on the company’s prospectus, which may not reveal long-term performance.
- Oversubscription issues: Even if you like the IPO, there’s no assurance you will get allotment.
- Hype-driven decisions:Many retail investors apply based on popularity rather than proper analysis.nt.
- Volatility after listing: Newly listed stocks often show sharp price fluctuations in the initial weeks.
Type of IPO?
IPO’s are mainly two types:
1. Fixed Price Offering
In a Fixed Price IPO, the company decides the share price before the issue opens. Investors know exactly what they will pay per share. After the IPO closes, the company reviews the total demand at that fixed price. High demand is a positive sign, low demand suggests the price may have been set too high.
2. Book Building Offering
Book Building IPO does not have a single fixed price. Instead, the company provides a price band (for example, ₹100–₹120), and investors bid within that range. Merchant bankers and underwriters collect all bids from institutional and retail investors to understand how much demand exists at different price levels. Based on these bids, the final issue price, called cut-off price, is decided. This method helps companies discover a fair price.
What are the Eligibility Criteria for an IPO Application?
Applying for an IPO is quite simple for retail investors in India, and the eligibility rules are straightforward. Here’s what you must have before you can apply:
1. Demat Account
Demat account is mandatory because the shares you receive (if allotted) are credited in electronic form. Without a Demat account, you cannot apply for any IPO.
2. Linked Bank Account (For ASBA)
Your bank account must support ASBA (Application Supported by Blocked Amount). This ensures the IPO amount is blocked in your account until allotment, and only the required amount is debited.
3. PAN Card
A valid PAN card is compulsory for identity verification and to ensure that you don’t submit multiple applications, which is not allowed.
4. Sufficient Funds in Your Bank Account
You need enough balance to cover the application amount based on the number of lots you are applying for. If funds are insufficient, your application will be rejected by the bank.
5. UPI ID (If Applying Through UPI)
For retail investors applying via UPI (through broker apps), a valid and active UPI ID is necessary to approve the payment request.
6. Age Requirement
You must be 18 years or older with valid KYC documents. Minors can apply, but only through a guardian-operated Demat and bank account.
How to apply for an IPO Online?
- Open your broker’s website or app and log in to your account.
- Go to the IPO section and find the IPO you want to apply for.
- Choose how many stocks you want and the price you’re good with
- Enter your UPI ID, then click on”Submit” button.
- Open your UPI app and then approve your transaction.
- Wait for the mandate notification in your UPI app
How to apply for an IPO Offline?
- Visit your bank branch or the broking firm’s office.
- Complete the ASBA application form and share your KYC details.
- Your funds will be temporarily blocked. Once shares are assigned, the amount will be deducted from your account.
IPO Key Dates and Meaning
- Open/Close Date: IPO process starts on the “open” date and ends on the “close” date. During this time, anyone who wants to buy shares can place their bids.
- Allotment Date: After the bidding window closes, the company decides who gets how many shares.
- Refund Date: The day when the company refunds the money to investors who did not receive shares.
- Credit to Demat Account Date: If you’re one of the lucky ones who got shares, they’ll show up in your account.
- Listing Date: This is the day the company’s shares officially list on the stock market and become available for trading.
How to Check the IPO Allotment Status?
Here’s how you can quickly check whether you’ve been allotted shares in the IPO you’ve applied for.
Step 1: Go to the IPO registrar’s website
Step 2:Have these ready:
- Your PAN Card
- IPO Application Number
- Demat Account Number / DP Client ID
Final Words
IPO is more than just a listing even, it’s a company’s transition into the public market and an investor’s chance to participate in its growth. By understanding IPO meaning, types of IPO, how the process works and the eligibility requirements, you can judge an offer more confidently. Instead of relying on hype, focus on the company’s business strength, valuation and long-term potential.
FAQs on IPO
Is it good to invest in an IPO?
It can be good if the company has strong fundamentals and reasonable valuation, but IPOs also carry risk. Listing gains are not guaranteed.
How do I apply for an IPO in India?
You need a Demat account, a bank account with ASBA or UPI and sufficient funds. You can apply through your broker or your bank’s net banking.
What are the types of IPO?
The two main types are Fixed Price IPO and Book Building IPO, depending on how the issue price is decided.
Who is eligible to apply for an IPO?
Any Indian resident with a PAN card, Demat account and sufficient funds can apply. NRIs can apply through NRE/NRO-linked Demat accounts.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
