If you’re interested in investing in the stock market, you’ve likely heard the term IPO. But what exactly is an IPO? How does it work? What are its types, and how can you apply for one? In this article, we break down everything in simple terms.
✅ What is an IPO?
IPO (Initial Public Offering) is the process by which a private company offers its shares to the public for the first time. By doing so, the company gets listed on a stock exchange like NSE or BSE, and investors get a chance to own a piece of the company.
Example:
When Zomato went public in 2021, it offered shares to the public through an IPO. Those who applied got shares allotted and could trade them on the stock market.
🔍 Why Do Companies Launch an IPO?
Companies go public for several reasons:
- To raise capital for expansion, R&D, or debt repayment.
- To increase brand visibility and market credibility.
- To allow early investors or founders to liquidate part of their holdings.
📦 Types of IPOs
There are mainly two types of IPO pricing methods:
1. Fixed Price Issue
- The company fixes a specific price for its shares.
- Investors know the price before applying.
- Example: Share price is fixed at ₹150 per share.
2. Book Building Issue
- A price band is given (e.g., ₹100 to ₹120).
- Investors bid within the band.
- Final price is determined based on demand.
💡 Most modern IPOs in India follow the Book Building method.
📝 How to Apply for an IPO in India?
Applying for an IPO is now super easy, thanks to online platforms. Here’s a step-by-step guide:
✅ Step 1: Open a Demat & Trading Account
You need a Demat account to hold shares and a trading account to place orders. You can open these with brokers like Zerodha, Upstox, Angel One, Groww, or Paytm Money.
✅ Step 2: Check IPO Details
Look for:
- Opening and closing date
- Price band
- Lot size (minimum number of shares)
- Company financials
✅ Step 3: Place Your Bid
Via broker’s app or website:
- Choose IPO
- Enter bid quantity (in lots)
- Select cut-off price (for retail investors, it’s usually the best choice)
✅ Step 4: Block Funds via UPI or ASBA
- For UPI: Approve payment request on your app (like Google Pay or PhonePe).
- For ASBA: If applying via net banking, funds stay in your bank account but are blocked till allotment.
✅ Step 5: Wait for Allotment
- If shares are allotted, they reflect in your Demat account.
- If not, blocked funds are unblocked automatically.
🧮 How Allotment Happens?
In case of oversubscription, allotment is done via a lottery system, especially in the retail category. Applying early or from multiple accounts does not increase chances.
🧠 Key Tips Before Applying for an IPO
- Read the Red Herring Prospectus (RHP) of the company.
- Check company fundamentals and valuation.
- Avoid IPOs with hype but weak financials.
- Apply only what you can afford to block for a week or two.
📊 Recent Popular IPOs in India
| Company | Year | GMP (Grey Market Premium) | Listing Gain |
|---|---|---|---|
| Zomato | 2021 | ₹20–₹25 | ~53% |
| LIC | 2022 | Negative GMP | -8% |
| Nykaa | 2021 | ₹600+ | ~96% |
| Tata Tech | 2023 | ₹400+ | ~162% |
🚨 Note: Past performance is not a guarantee of future results.
🔚 Conclusion
IPO investing can be exciting and rewarding, especially if you pick strong companies with sound fundamentals. However, always do your own research or consult a financial advisor.
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Jaspal Singh is an international business professional with 19+ years of experience in the agri-machinery industry. He writes practical guides on career planning, finance, and migration.