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You might have come across the news when companies such as Zomato, LIC, or Nykaa “went public” recently. What does that actually mean? It all starts with an IPO Cycle – Initial Public Offering.
In this guide, we will provide you the information you need to get up to speed with IPOs, covering: What they mean and their purpose, types of IPOs, their process, advantages and risks, and how you as a retail investor can apply for one.
An IPO (Initial Public Offering) is the first time a private company offers and sells its shares to the general public by listing the shares on a stock exchange (e.g. NSE, BSE) and converting itself from a private company into a public company. Ideally, after the IPO anyone can buy shares and become a part owner of that company (I mean anyone — retail investors, institutions and even you).
An IPO is much more than just publicity. An IPO can solve a few specific business needs:
1. To raise money
Companies raise money to:
Grow
Repay debts
Research and develop (R&D)
Buy assets or another company
2. To increase brand value
Going public will add visibility and credibility to the company.
3. To provide liquidity for early investors
Founders, VCs, and early investors will often sell a portion of their holdings as part of an IPO.
4. To hire people
Public companies can offer their employees stock options (ESOPs) to attract and retain talent.
| Investor Category | Reserved Percentage (Typical) | Example |
|---|---|---|
| Retail Individual Investors (RII) | ~35% | You and me (investing under ₹2 lakh) |
| Qualified Institutional Buyers (QIB) | ~50% | Mutual Funds, Banks, FIIs |
| Non-Institutional Investors (NII) | ~15% | High net-worth individuals |
There are two primary categories of IPOs:
1. Fixed Price IPO
The firm establishes set price per share.
Buyers know share price ahead of time.
2. Book Building IPO
A price range (called a price band) is established.
Buyers place bids within that band (e.g., ₹100 – ₹120).
The final price is decided as a function of demand.
Here’s the process a company follows to go from being private to being public:
Step 1: Engage Merchant Bankers (Underwriters)
They assist the company in drafting documents, pricing the shares, and ensuring regulatory compliance.
Step 2: File Draft Red Herring Prospectus (DRHP)
This document is submitted to the SEBI (Securities and Exchange Board of India) and contains vital company information, financial information, risk factors, and much more.
Step 3: SEBI Approval
If SEBI is satisfied with the DRHP they will give the necessary approval and the company can move forward with the IPO.
Step 4: IPO Opening for Subscription
The offer will generally be open for 3 working days and during this time investors will register their bids.
Step 5: Allotment and Refunds
Shares will be allotted according to demand and unsuccessful applicants will be refunded.
Step 6: Listing on Stock Exchange
The company will be listed on the NSE/BSE and the shares are open for trading by the public.
Retail investors can apply through:
💳 UPI via Broker Apps
For example Zerodha, Groww, Angel One, Upstox
Fast, easy, payment using UPI
🏦 Through Bank ASBA Facility
ASBA = Application Supported by Blocked Amount
Your money remains with your bank, only to be debited if shares are allotted.
When a stock lists at a price higher than the IPO price, it’s called a listing gain.
For example:
IPO Price = ₹100
Listing Price = ₹130
Listing Gain = ₹30/share or 30%
Entry at early stage of company growth
Potential listing gains
Long-term wealth creation
Transparency (via DRHP)
Not all IPOs give profits — some list below issue price
Overhyped companies may disappoint post-listing
Lock-in periods (for anchor investors) may lead to stock fall later
Read the DRHP carefully (check profit history, debt, management)
Check GMP (Grey Market Premium) – a rough idea of demand
Don’t invest blindly based on social media hype
Diversify – don’t put all your money in one IPO
Let’s say XYZ Technologies wants to raise ₹1,000 crore. It offers 1 crore shares at ₹100 per share via IPO. Once listed, if the share price rises to ₹130, investors get a ₹30 gain per share.
IPOs offer a golden opportunity to invest in growing companies early. But like any investment, they carry risks.
Do your research, invest wisely, and always align IPOs with your financial goals and risk appetite.
We help retail investors participate in IPOs, mutual funds, and stock market products with guidance and support.
👉 Start today: https://bit.ly/4kKnRB7
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