IPO - Complete Guide for Beginners

An IPO (Initial Public Offering) is the process by which a private company offers its shares to the public for the first time and becomes a publicly listed company on a stock exchange.

Below is a complete and detailed explanation:

1. Meaning of IPO

An Initial Public Offering (IPO) is the first sale of a company’s shares to the public in the primary market.

• Company raises capital from public investors
• Shares get listed on stock exchanges (NSE/BSE)
• Company changes status from private to public

2. Objectives of an IPO

Companies launch IPOs to:

• Raise funds for business expansion
• Reduce debt
• Fund new projects or acquisitions
• Provide exit to early investors
• Improve brand image and credibility

3. Types of IPO

(a) Fresh Issue

• New shares are issued
• Company receives money
• Share capital increases

(b) Offer for Sale (OFS)

• Existing shareholders sell shares
• Company does not receive funds
• No increase in share capital

👉 Most IPOs include both fresh issue and OFS.

4. IPO Pricing Methods

1. Fixed Price Issue

• One fixed price for shares
• No price discovery

2. Book-Building Issue

• Price band is given
• Investors bid within the band
• Final issue price decided by demand

5. IPO Process (Step-by-Step)

1. Company appoints merchant bankers
2. Draft Red Herring Prospectus (DRHP) filed with SEBI
3. Price band and dates announced
4. IPO opens for subscription
5. Investors apply through ASBA
6. IPO closes
7. Shares allotted
8. Shares listed on stock exchange

6. Who Can Invest in an IPO

• Retail Individual Investors (RII)
• Non-Institutional Investors (NII/HNI)
• Qualified Institutional Buyers (QIB)

Each category has different limits and allotment rules.

7. IPO Subscription and Allotment

• IPO can be under-subscribed or over-subscribed
• Retail allotment done by lottery if oversubscribed
• NII and QIB allotment done proportionately

8. IPO Issue Price and Listing Price

• Issue Price: Price paid during IPO
• Listing Price: Price at which shares start trading
• Listing price may be higher (listing gain) or lower (listing loss)

9. Advantages of IPO

For Company

• Access to large capital
• Increased transparency
• Improved market valuation

For Investors

• Opportunity to invest early
• Potential listing gains
• Transparency and regulation by SEBI

10. Disadvantages / Risks of IPO

• Market volatility may affect listing
• Overvaluation risk
• Limited historical data for analysis

11. IPO vs FPO

12. Example of IPO

If a company issues 1 crore shares at ₹100 each:

• Total funds raised = ₹100 crore
• Shares are listed on NSE/BSE

13. Regulatory Authority (India)

• Regulated by SEBI
• Conducted through NSE / BSE

14. In Simple Words

An IPO is when a company first sells its shares to the public to raise money and gets listed on the stock exchange.