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Everything you need to know about IPOs, from basics to advanced strategies. Start your investing journey with confidence.
Initial Public Offering basics
An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time. This allows the company to raise capital from public investors, and in return, investors get ownership stakes in the company.
Private company sells shares to the public for the first time
Company raises money for expansion, debt repayment, or other purposes
Investors become part-owners of the company by buying shares
For large, established companies. Listed on NSE/BSE main board. Higher minimum investment. Strict SEBI regulations.
For small and medium enterprises. Listed on NSE SME or BSE SME. Higher risk but potential for bigger returns.
Who can apply in an IPO
Individual investors who apply for shares worth up to ₹2 lakhs.
High net worth individuals investing more than ₹2 lakhs.
Banks, mutual funds, insurance companies, and other institutions.
Step-by-step guide
You need a Demat account with any broker like Zerodha, Groww, Upstox, or Angel One. Also ensure your bank account is linked.
Link your UPI ID (like yourname@upi) to your trading account. Most IPO applications now use ASBA (Application Supported by Blocked Amount) via UPI.
Check IPO Guruji for currently open IPOs. Review the price band, lot size, and issue details before applying.
Go to IPO section in your broker app, select the IPO, choose number of lots, enter your UPI ID, and submit the application.
Open your UPI app (Google Pay, PhonePe, BHIM) and approve the mandate request. The amount will be blocked (not debited) in your account.
Allotment happens 2-3 days after IPO closes. If allotted, shares are credited to Demat. If not, the blocked amount is released.
Understanding the unofficial market
Grey Market Premium (GMP) is the unofficial price at which IPO shares trade before they are officially listed on the stock exchange. It indicates market demand and expected listing gains.
Indicates expected listing at premium. High demand for the IPO.
Indicates expected listing at discount. Low demand or negative sentiment.
GMP is an unofficial indicator from grey markets. It may not reflect actual listing prices. Trading in grey markets is not regulated by SEBI. Use GMP only as a reference, not as investment advice.
Key dates to remember
Investors can apply for IPO shares during this window
Last day to submit applications
Registrar finalizes allotment based on demand
For non-allotted applications, amount is unblocked
Allotted shares credited to your Demat account
Shares start trading on stock exchange
Maximize your chances
Family members can apply separately. Each application has equal chance in lottery.
For retail investors, always apply at cut-off price to ensure your application is valid.
Read the RHP (Red Herring Prospectus), check company financials, and understand the business.
Apply on the last day after checking subscription status. But don't wait until last minute!
High subscription doesn't guarantee profits. Focus on fundamentals, not hype.
Not all IPOs give listing gains. Some may list at discount. Invest for long term if you believe in the company.
New Fund Offering basics
A New Fund Offering (NFO) is when an Asset Management Company (AMC) launches a new mutual fund scheme and offers units to investors for the first time at face value (usually ₹10).
Common questions about IPO investing
An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time. This allows the company to raise capital from public investors, and in return, investors get ownership stakes in the company. IPOs are listed on stock exchanges like NSE and BSE in India.
To apply for an IPO: 1) Open a Demat and trading account with any broker (Zerodha, Groww, Upstox, Angel One). 2) Link your UPI ID for ASBA payments. 3) Find open IPOs in your broker app. 4) Select the IPO, choose number of lots, and submit application. 5) Approve the UPI mandate request in your UPI app within 1-2 hours. The amount will be blocked (not debited) until allotment.
Grey Market Premium (GMP) is the unofficial price at which IPO shares trade before they are officially listed on the stock exchange. It indicates expected listing gains. For example, if issue price is ₹100 and GMP is ₹50, the expected listing price is ₹150. However, GMP is unofficial and not regulated by SEBI, so it should not be the only factor for your decision.
The minimum investment depends on the lot size and price band. For retail investors (RII category), you can apply for up to ₹2 lakhs per IPO. The minimum investment is calculated as: Lot Size × Issue Price (upper band). For example, if lot size is 15 shares and price is ₹300, minimum investment is ₹4,500. You can apply for multiple lots up to the ₹2 lakh limit.
For Retail Individual Investors (RII), if the IPO is oversubscribed more than 2x, allotment is done through lottery system where computer randomly selects lucky applicants. Each application gets equal chances regardless of number of lots applied. For NII and QIB categories, proportional (pro-rata) allotment is done based on demand. If IPO is undersubscribed, everyone gets full allotment.
Mainboard IPO is for large, established companies with minimum issue size of ₹10 crore, listed on NSE/BSE main board with strict regulations and high liquidity. SME IPO is for small and medium enterprises, listed on NSE SME or BSE SME platform with relaxed criteria, minimum investment of ₹1-2 lakhs, and lower liquidity. SME IPOs carry higher risk but may offer bigger returns. Mainboard is safer for beginners.
IPO allotment typically happens 6-7 working days after the IPO closes. The timeline is: Day 1-3: IPO open period, Day 4: IPO closes, Day 5-6: Basis of allotment finalized by registrar, Day 7: Refund processed for non-allotted applications and shares credited to Demat for allotted applications, Day 8: Listing day on stock exchange. You can check allotment status on registrar's website (Link Intime, KFintech, etc.) from Day 7 onwards.
New Fund Offering (NFO) is when an Asset Management Company (AMC) launches a new mutual fund scheme and offers units to investors for the first time at face value, usually ₹10 per unit. Unlike IPOs which are for company shares, NFOs are for mutual fund units. NFO gives you entry at ₹10 NAV, but ₹10 NAV doesn't automatically mean good value - evaluate the fund strategy, AMC track record, and fund manager before investing.
Yes, but each application must be from a unique PAN card. You cannot apply multiple times using the same PAN - all duplicate applications will be rejected. However, family members (spouse, parents, children) can each apply separately using their own PAN and Demat accounts, giving your family multiple chances in the lottery. This is completely legal and allowed by SEBI regulations.
IPO investment carries market risk like all equity investments. Not all IPOs give listing gains, and some may list at a discount to issue price (negative returns). Historical data shows about 60-70% IPOs list with gains, 20-25% list flat, and 10-15% list at loss. Research the company thoroughly by reading the Red Herring Prospectus (RHP), checking financials, understanding the business model, and evaluating promoter track record. Only invest what you can afford to lose.
ASBA (Application Supported by Blocked Amount) is a secure method of applying for IPOs where the application money remains blocked in your bank account until allotment, instead of being debited immediately. If you get allotment, only then the money is debited. If not allotted, the blocked amount is automatically unblocked. UPI-based IPO applications are a form of ASBA and are the most convenient method today.
Cut-off price means you agree to pay whatever final price is decided by the company within the price band. For example, if price band is ₹100-₹110 and you bid at cut-off, you'll pay the final price (usually the upper band ₹110). This is recommended for retail investors as it increases allotment chances. Alternatively, you can bid at a specific price (e.g., ₹105), but if final price is higher, your bid may be rejected.
Lot size is the minimum number of shares you must apply for in an IPO. You cannot apply for less than one lot. For example, if lot size is 50 shares and price is ₹100, minimum investment is ₹5,000 (one lot). You can apply for multiple lots: 1 lot = ₹5,000, 2 lots = ₹10,000, and so on, up to retail limit of ₹2,00,000. In lottery-based allotment, applying for 1 lot or 10 lots gives same allotment probability.
Retail Individual Investor (RII) category is for individual investors applying for IPO with total investment up to ₹2,00,000. This category gets 35% reservation in every IPO. Allotment for retail investors is done through lottery system if oversubscribed. Retail category generally has better allotment chances compared to HNI category. You can apply in retail as long as your total application (lots × price) doesn't exceed ₹2 lakhs.
HNI (High Net Worth Individual) or NII (Non-Institutional Investor) category is for investors applying for more than ₹2,00,000 in an IPO. This category gets 15% reservation. HNI allotment is always proportionate (pro-rata) - if category is oversubscribed 50x, you'll get 1/50th of what you applied for. HNI category usually sees very high oversubscription (50x-100x), resulting in very small allotment percentages.
QIB (Qualified Institutional Buyers) are large institutional investors like mutual funds, insurance companies, banks, FIIs, and pension funds. They get 50% reservation in IPOs. QIB participation is seen as a positive indicator of IPO quality since these are professional investors who do thorough research. Up to 60% of QIB portion can be allocated to Anchor Investors who invest 1 day before IPO opens.
Anchor investors are institutional investors who get allotment 1 day before the IPO opens to the public. They invest at the upper price band with a lock-in period of 30 days (for up to 50% holding) and 90 days (for remaining). Strong anchor participation from reputed funds indicates confidence in the IPO and is generally seen as a positive sign. Up to 60% of the QIB portion can go to anchor investors.
Listing day is when the IPO stock starts trading on stock exchanges (NSE/BSE) for the first time, typically 6-7 days after IPO closes. On listing day, the stock opens at a price determined by demand-supply (could be above, below, or at issue price). If you got allotment, shares are already in your demat account 1 day before listing, so you can sell immediately. You can check listing gains by comparing opening price with your issue price.
DRHP (Draft Red Herring Prospectus) is the initial document filed with SEBI containing detailed company information but without final price. RHP (Red Herring Prospectus) is the updated document with finalized price band, filed just before IPO opens. Both documents contain crucial information: company financials, business model, risks, use of proceeds, promoter details. Always read at least the summary section before applying to understand what you're investing in.
Book building is the price discovery process where the company offers shares within a price band (e.g., ₹100-₹110) and investors bid at their preferred price. Based on demand at different price points, the company and merchant bankers decide the final issue price. This is the most common IPO method in India. Alternatively, there's fixed price IPO where price is predetermined and investors simply apply.
Green Shoe Option (or Over-Allotment Option) allows the company to issue up to 15% additional shares if the IPO is oversubscribed and there's strong demand after listing. This helps stabilize stock price in the initial trading days. Merchant bankers use these extra shares to support the stock price if it falls below issue price. For investors, it means slightly larger issue size and better price stability post-listing.
Registrar (like Link Intime, KFintech, Bigshare, Cameo) is appointed by the company to handle IPO logistics: processing applications, finalizing allotment basis, crediting shares to demat accounts, processing refunds, and providing allotment status. After IPO closes, you check allotment status on the registrar's website using your PAN, application number, or demat account number. Each IPO mentions its registrar in the prospectus.
Lead Managers (merchant bankers like Kotak Mahindra Capital, ICICI Securities, Axis Capital) are investment banks appointed by the company to manage the entire IPO process: due diligence, pricing, marketing to investors, managing book building, regulatory compliance, and post-listing support. Reputed lead managers add credibility to the IPO. Companies usually appoint 2-4 lead managers for large IPOs.
IPO (Initial Public Offering) is when a company offers shares to public for the FIRST time, moving from private to public company. FPO (Follow-on Public Offering) is when an already listed company issues ADDITIONAL shares to raise more capital. FPO is less risky than IPO since the company is already listed and has trading history. Both follow similar application process through brokers.
OFS (Offer for Sale) is when existing shareholders (usually promoters or government) sell their existing shares to public investors. Money goes to selling shareholders, not to the company. This is different from fresh issue where company issues new shares and money goes to company for business expansion. IPOs usually have both fresh issue and OFS components. Check RHP to see the split - higher fresh issue component is generally better.
Promoter dilution means reduction in promoters' ownership percentage after IPO. This happens when company issues new shares (fresh issue). Some dilution is normal and healthy - it shows promoters are willing to share ownership with public. However, very high dilution (promoters' stake falling below 50-60%) or significant OFS (promoters selling their existing shares) can be a red flag indicating lack of confidence in the business.
IPO grading (discontinued in 2014) was when SEBI-registered agencies rated IPO fundamentals on a scale of 1-5, with 5 being highest. While grading is no longer mandatory, credit rating agencies and research firms still provide recommendations. These should be used as reference points, not the sole decision factor. Always do your own research by reading RHP, checking financials, and understanding the business.
Lock-in period is the time during which certain shareholders cannot sell their shares. For retail investors, there's NO lock-in - you can sell immediately on listing day. However, promoters typically have 3-year lock-in on pre-IPO shares, anchor investors have 30-90 day lock-in, and pre-IPO investors may have 1-year lock-in. These lock-ins ensure long-term commitment from key stakeholders.
When you sell IPO shares, you pay: 1) Brokerage (₹0-20 for most discount brokers, 0.03%-0.5% for traditional brokers), 2) STT - Securities Transaction Tax (0.1% on sell side), 3) Exchange charges (~0.003%), 4) GST (18% on brokerage + exchange charges), 5) SEBI charges (₹10 per crore), 6) DP charges (₹15-30 per sale). Total charges are typically 0.3-0.5% of transaction value.
IPO listing gains are treated as Short-Term Capital Gains (STCG) if you sell within 1 year of allotment. STCG is taxed at flat 15% regardless of your income tax slab. If you hold shares for more than 1 year, gains become Long-Term Capital Gains (LTCG) taxed at 10% on gains above ₹1 lakh per year. First ₹1 lakh of LTCG per financial year is tax-free. Remember to factor in taxes when calculating your net returns.
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