The stock market is filled with the buzz of IPOs lately. But what is IPO? IPO stands for Initial Public Offering and its name is quite prominent in conveying the meaning as well.
Initial Public Offering is the process of a private company going public. Simply put, a company decides to give some shares of the company to the retail investors. This is done to raise new capital. Once the IPO process is completed, the company officially gets listed on the Indian stock exchanges.
The various reasons behind a company getting listed can include,
- To clear the pending debts of the company.
- Raise capital for a new project or cover the operational costs.
- To increase the visibility of the company and increase credibility.
Before the IPO opens, the company files a DRHP (Draft Red Herring Prospectus) with SEBI. This document contains all the information related to the company’s financial data, its objectives, goals, and information related to the IPO.
An investor should carefully read all the information before applying for an IPO. The whole IPO process includes some major events.
- IPO Opening– The IPO usually stays open for 3 days. And an investor can apply for the particular during this time.
- IPO Allotment– After the successful application of an IPO, they are allotted to the investors. If an IPO is undersubscribed, then every investor gets the shares that they applied for, but in the case of an oversubscription, the IPO shares are allotted based on a lucky draw.
- IPO Listing – This is the day when the company is finally listed on the stock market. This is the perfect opportunity for beginners to make some great listing gains.
In addition to this, there are majorly two types of IPOs.
- Fixed Price Issue- In a fixed price issue, there is a definite price of the IPO that is pre-decided by the company. All the investors have to apply at the same price.
- Book Build Issue- This involves a price band with a range of 20%. The price is finally decided by looking at the demand of the IPO.
Now that you know what is IPO, the next question is how to apply for an IPO?
If you want to apply for an IPO, you need a demat account so that when you are allotted the shares, they can be credited to your demat account. An IPO’s minimum investment is ₹15,000, and the maximum is ₹2,00,000 (with a single PAN card).
ASBA (application supported by blocked amount) is the process of IPO application. In this, the amount remains blocked in your bank account till the IPO allotment. When you get the IPO allotment, the money is debited. The money is unblocked and reflects in your total amount in case of no allotment.
Hope this helped you in understanding what is IPO. If you have other stock market-related queries, fill in your details here, and we will try to resolve them as soon as possible.
