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What Is an IPO? Everything a Beginner Should Know About Initial Public Offerings

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📢 What Is an IPO? A Complete Beginner’s Guide

An IPO or Initial Public Offering is when a private company offers its shares to the public for the first time, allowing everyday investors like us to become part-owners of that company. But there’s more to IPOs than just buying shares. Let’s explore everything in detail — in simple, beginner-friendly language.

🔍 What Does IPO Mean?

IPO = Initial Public Offering. It’s the first time a private company offers its shares to the public by getting listed on a stock exchange (like NSE or BSE). After the IPO, anyone can buy or sell its shares.

💡 Why Do Companies Launch IPOs?

  • ✅ To raise capital for growth or expansion
  • ✅ To repay debt or strengthen financials
  • ✅ To give exit opportunity to early investors
  • ✅ To gain credibility and brand trust

  📊 How Does an IPO Work?

        1. The company hires investment banks to underwrite the IPO
        2. A draft red herring prospectus (DRHP) is submitted to SEBI
        3. A price band is set, and the bidding process begins
        4. Investors apply during the IPO window (usually 3 days)
        5. Shares are allotted and listed on the stock exchange

📂 Types of IPOs

  • Fresh Issue: Company issues new shares and raises fresh capital
  • Offer for Sale (OFS): Existing shareholders sell their shares to the public
  • Most IPOs are a mix of both.

🔧 Step-by-Step IPO Process

  1. Board Decision: Company decides to go public.
  2. Hire Merchant Banker: They manage the IPO process.
  3. File DRHP: Draft Red Herring Prospectus submitted to SEBI (explains risks, financials, plans).
  4. SEBI Approval: SEBI reviews & approves IPO.
  5. Set Price Band: Company announces price range (e.g. ₹95–₹100).
  6. IPO Opens: Investors apply for shares
  7. IPO Closes: After 3 days, applications close.
  8. Allotment: Shares are allotted via lottery if oversubscribed.
  9. Listing: Shares listed on exchange (within 6 days).

📘 Key IPO Terms Explained

  • DRHP: Detailed IPO document explaining everything about the company
  • Lot Size: Minimum shares you must apply (e.g. 1 lot = 15 shares)
  • Issue Price: Final price at which shares are allotted
  • Oversubscription: More demand than available shares
  • ASBA: Application process that blocks funds in your bank account until allotment
  • UPI: Digital payment method for IPOs
  • Anchor Investors: Big investors who invest 1 day before IPO opens for public

📲 How to Apply for an IPO

You can apply through:

  • 👉 Stock broker apps like Zerodha, Groww, Upstox
  • 👉 Bank net banking (ASBA method)
  • 👉 UPI method (enter UPI ID and approve request)

Minimum investment is usually under ₹15,000 for 1 lot.

👥 Who Can Invest in an IPO?

  • Retail Investors: Individuals like you and me (₹2 lakh limit)
  • QIBs: Qualified Institutions like mutual funds, banks
  • HNIs: High Net-Worth Investors (invest > ₹2 lakh)

📈 What Is Listing & Listing Gain?

Listing: First day when IPO shares start trading on stock market. If listed above issue price, it’s a listing gain. Example: IPO price ₹100, listing ₹120 = ₹20 gain per share.

⚠️ Risks in IPOs

  • 🔸 Listing below issue price = loss
  • 🔸 Market volatility can affect listing
  • 🔸 IPO hype doesn’t always match real performance
  • 🔸 No guarantee of allotment if oversubscribed

🕵️ What Is Grey Market & GMP?

Grey Market: Unofficial market where IPO shares trade before listing. GMP (Grey Market Premium): The premium at which IPO is expected to list. Example: GMP ₹50 on issue price ₹100 = expected listing ₹150. Note: Grey market is unofficial and risky.

📊 Real-Life IPO Examples

  • Zomato IPO: Huge hype, listed with good gain
  • LIC IPO: India’s biggest IPO but listed below issue price
  • Nykaa IPO: Excellent debut but corrected later

❓ Beginner FAQs

  • Q: Can I sell IPO shares on listing day?
    A: Yes, once listed, you can buy or sell freely.
  • Q: How to know if I got IPO allotment?
    A: Check on registrar’s website (like Link Intime or KFintech) using PAN.
  • Q: What happens to money if I don’t get allotment?
    A: It is automatically unblocked in 4–5 days.
  • Q: Can I apply multiple times from one PAN?
    A: No. Only one application per PAN is allowed in retail category.

✅ Final Words

An IPO is an exciting opportunity to invest early in growing companies, but also comes with risks. As a beginner, take time to understand the company, read the DRHP, and only invest in IPOs you believe in. Never apply blindly or based only on hype. The stock market rewards informed investors. 📘

Author: @nkit

📚 Join my Telegram channel for educational stock market insights and research:
👉 https://t.me/Investtrade_by_Ankit

⚠️ This blog is for learning purposes only. Please do your own research before making any investment decisions.

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