IPO Basics for Beginners
Introduction
An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time and gets listed on a stock exchange such as NSE or BSE. This document explains IPO fundamentals in a simple, beginner-friendly manner.
What Is an IPO?
An IPO allows a company to raise capital from public investors by issuing equity shares. In return, investors receive ownership in the company and the shares become tradable on the stock exchange after listing.
Why Companies Launch IPOs
- To raise funds for business expansion or debt reduction
- To provide an exit route for early investors and promoters
- To improve brand visibility and public credibility
- To comply with long-term growth and capital requirements
Who Can Invest in an IPO?
IPO investments are open to different categories of investors:
- Retail Individual Investors (RII) – Individuals investing up to ₹2 lakh
- Non-Institutional Investors (NII / HNI) – Investors investing more than ₹2 lakh
- Qualified Institutional Buyers (QIB) – Mutual funds, insurance companies, FPIs, banks
How IPO Pricing Works
Most IPOs in India follow the Book Building Process, where a price band is announced (for example ₹90–₹100).
Investors can bid at any price within this band or choose the cut-off price, indicating willingness to buy at the final discovered price.
What Is a Lot Size?
IPO shares are applied for in fixed bundles called lots. Retail investors must apply for at least one lot.
Example: If lot size is 15 shares and issue price is ₹100, one lot costs ₹1,500.
What Is IPO Subscription?
IPO subscription shows how many times the IPO has been applied for compared to the shares available.
A subscription of 5x means demand is five times the available shares.
What Is IPO Allotment?
IPO allotment is the process of deciding which applicants receive shares and how many, based on demand and SEBI regulations.
Is IPO Allotment Guaranteed?
No. In oversubscribed IPOs, not all applicants receive shares.
Retail allotment is often done through a computerized lottery system, giving equal chance to all valid applicants.
When Are IPO Shares Listed?
After allotment, shares are credited to investors’ demat accounts and listed on the stock exchange on the announced listing date.
Key Risks Beginners Should Know
- Allotment is not guaranteed in popular IPOs
- Listing gains are not assured
- Share prices can fall below issue price after listing
- IPO hype may not reflect long-term fundamentals
Final Note for Beginners
IPOs can be a useful way to start investing, but beginners should treat them as long-term equity investments rather than guaranteed profit opportunities.