What Is an IPO? Everything a Beginner Should Know About Initial Public Offerings
What Is an IPO? Everything a Beginner Should Know
Author: @nkit
When people start learning about the stock market, one of the most confusing terms they hear is IPO. Many beginners apply for IPOs just because others are doing it or because of hype on social media. But without understanding how IPOs actually work, this can easily lead to losses.
In this guide, you will clearly understand what an IPO is, why companies launch IPOs, how the IPO process works in India, its benefits, risks, and how beginners should approach IPO investing.
What Is an IPO?
IPO stands for Initial Public Offering. It is the process through which a private company offers its shares to the public for the first time and gets listed on the stock exchange.
Before an IPO, a company is owned by its founders, early investors, or private institutions. After the IPO, common investors like you and me can buy and sell the company’s shares in the stock market.
Why Do Companies Launch an IPO?
Companies go for an IPO for several important reasons:
- To raise money for business expansion
- To reduce existing debt
- To fund new projects or technology
- To give early investors an exit opportunity
- To increase company credibility and public visibility
Once listed, the company must follow strict rules and regularly share financial information with investors.
How Does the IPO Process Work in India?
The IPO process follows a structured path regulated by SEBI to protect investors.
- The company appoints investment banks and files a draft prospectus.
- SEBI reviews the document for compliance.
- The IPO price band and issue dates are announced.
- Investors apply through banks or broker apps.
- Shares are allotted based on demand.
- The company gets listed on NSE or BSE.
Not every applicant receives shares. If demand is high, allotment happens through a lottery system.
Important IPO Terms Explained Simply
Price Band: The range within which investors can bid for shares.
Lot Size: The minimum number of shares you must apply for.
ASBA: Your money stays blocked in your bank account until allotment.
Listing Day: The first day shares trade on the stock exchange.
DRHP: A document that contains complete business and financial details of the company.
How Can a Beginner Apply for an IPO?
Applying for an IPO is simple if you have the basics ready.
- You must have a Demat account.
- You must have a trading account.
- Your bank account should support UPI or ASBA.
- Apply using your broker app or bank net banking.
- Enter bid price and quantity.
- Approve the UPI mandate.
If shares are not allotted, the blocked money is automatically released.
Benefits of Investing in IPOs
- Chance to invest early in growing companies
- Possibility of listing gains
- Long-term wealth creation if business performs well
- Opportunity to diversify portfolio
However, benefits are never guaranteed. IPO investing requires careful analysis.
Risks of IPO Investing (Very Important for Beginners)
Many beginners believe IPOs always give profits. This is not true.
- Some IPOs list below issue price
- Company valuation may be expensive
- Market conditions affect listing performance
- Limited past data makes analysis difficult
- Hype can mislead new investors
Blindly following grey market premiums or social media tips can be risky.
How Should Beginners Evaluate an IPO?
Before applying for any IPO, beginners should check:
- Company business model
- Revenue and profit growth
- Debt level
- Use of IPO funds
- Industry competition
- Long-term sustainability
Reading the company prospectus summary can prevent many mistakes.
Real-Life Indian IPO Examples
India has seen both successful and disappointing IPOs.
Some IPOs created strong long-term value, while others failed to perform after listing. This shows why understanding the business is more important than chasing short-term gains.
What Happens After IPO Allotment?
After allotment:
- Shares appear in your Demat account
- You can sell on listing day or hold long term
- Price may go up or down based on demand
Beginners should avoid panic selling and think logically.
Final Thoughts for Beginners
An IPO is not a shortcut to quick money. It is simply another way for companies to raise funds and for investors to participate in growth.
If you understand the business, risks, and market conditions, IPO investing can be rewarding. If not, it can lead to disappointment.
Always invest with knowledge, patience, and a long-term mindset.
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