The Ultimate Guide to Initial Public Offerings (IPO): Everything You Need to Know Before Investing

According to the Ministry of Finance, India's IPO volumes in FY26 (up to December 2025) were 20% higher year-on-year, while the amount raised increased by 10% during the same period.

Many investors get caught up in the IPO frenzy, applying for every new public issue in the hope of earning significant returns. However, successful IPO investing requires a complete understanding of what an IPO is, the various types, the application process, and everything else you need to know about IPOs in India.

What is an IPO?

An Initial Public Offering (IPO) is the process through which a privately held company becomes a publicly traded company by offering a portion of its shares to public investors such as retail investors, Qualified Institutional Buyers (QIBs), and High-Net-Worth Individuals (HNIs).

Why Companies Go for IPO

Here’s why companies opt for an IPO and become a public company.

Raise Capital

Companies often sell a portion of their shares and go public to raise capital for research and development (R&D), launch of new products/services, business expansion strategies, or to repay their debt obligations.

Liquidity and Exits

Certain companies go public to allow their founders, venture capitalists, and early investors to sell their holdings and earn profits by selling their shares.

Build Credibility

Publicly listed companies operate under the strict regulatory oversight of SEBI (Securities and Exchange Board of India), requiring them to disclose accurate financial information and provide complete transparency to their investors. This builds trust among the company’s customers, vendors, and business partners.

Types of IPOs

The following are the types of IPO in India.

Fresh Issue

In a Fresh Issue, a company issues new shares to the public, resulting in dilution of the proportional ownership stake of its existing shareholders. The capital raised is typically invested towards R&D, debt repayment, or operational expansion.

Offer for Sale (OFS)

In an Offer for Sale (OFS), the company’s existing shareholders, such as promoters, founders, or private equity firms, sell their shares to the public. The funds raised are transferred to the selling shareholders, not the company.

Hybrid IPO

A Hybrid IPO is a mixture of Fresh Issue and an Offer for Sale. This type of IPO allows the company to raise fresh capital for its operations while enabling the early investors to realise their return on investment and exit the company.

Direct Listing

In certain scenarios, companies list their existing shares directly on a stock exchange instead of issuing new shares through underwriters. Since no new shares are issued, the company does not raise fresh capital. Additionally, the absence of underwriters and lock in periods may lead to greater price volatility after listing.

What is the IPO Process?

The following is the complete process of an IPO.

Preparation and Documentation

In this phase, the company appoints underwriters, such as investment banks or merchant bankers. These underwriters analyse the company’s financials, set the fundraising objectives and lay out the IPO details.

Once all the IPO details are finalised, the company and its underwriters prepare the Draft Red Herring Prospectus (DRHP), which includes information regarding the company’s business model, financials, fundraising objective and potential risks the company faces.

The Draft Red Herring Prospectus (DRHP) is submitted to SEBI for review and approval. SEBI must review and provide observations within 30 days of filing or within 30 days from receiving satisfactory responses and clarifications to its initial queries.

After receiving SEBI’s observations and making the necessary revisions, the company submits the approved Red Herring Prospectus (RHP) with the Registrar of Companies (RoC) and the stock exchanges. Interested investors can access the RHP on SEBI’s official web portal.

Pricing

The underwriters hired by the company perform marketing tours, presenting the business to potential institutional investors, financial analysts and HNIs. This helps the underwriters gauge market demand for the company’s shares.

After SEBI approves the RHP, the company releases the RHP along with a price band or a fixed price for the shares. Investors must bid for the shares within the IPO subscription period.

Allotment and Listing

When the bid closes, the underwriters assess the demand for the company’s shares to determine the final issue price. In case of IPO oversubscription, the shares are issued at a premium price according to SEBI’s allocation rules and are distributed through the lottery system.

On the Listing day, the shares are officially listed on the stock exchange and begin trading in the secondary market.

Types of Investors in an IPO and Their Reserved Quotas

The following are the categories of investors in an IPO and their allocation as per Regulation 6(1) of the SEBI ICDR Regulations, 2018.

Retail Individual Investors

Investors such as resident individuals, NRIs, and HUFs (Hindu Undivided Families) come under the Retail Individual Investors category. At least 35% of the shares offered in an IPO are usually reserved for retail investors, and they can bid at the cut-off price.

High Net-Worth Individuals (HNIs)

High Net-worth individuals (HNIs), also known as Non-Institutional Investors (NIIs), are investors, trusts, or companies that apply for shares worth more than ₹2 Lakh, with a reserved quota of 15 and no maximum investment limit.

Qualified Institutional Buyers (QIBs)

Mutual funds, commercial banks, pension funds and foreign portfolio investors fall under the Qualified Institutional Buyers (QIBs). QIBs have a reserved quota of up to 50%.

IPO Eligibility Criteria

Retail Individual Investors must meet the following eligibility criteria to apply for an IPO in India.

• Age

The individual must be at least 18 years old to apply for an IPO.

• Bank Account

The individual must have an active savings account with Application Supported by Blocked Amount (ASBA), which allows IPO application money to remain in your bank account until shares are allotted.

• Demat Account

A Demat Account is mandatory for applying for an IPO, as it holds the shares allotted in an electronic and dematerialised form.

• Pan Card

The individual must have a valid Permanent Account Number (PAN) linked to their Demat and bank account.

Book Building vs Fixed Price IPO

There are two pricing methods for IPOs: Book Building and Fixed Price.

Book Building Pricing Method

In the Book Building method, the company specifies a price band within which investors can bid for shares. The final issue price, known as the cut-off price, is determined based on the investor’s demand at different price points. Generally, investors who bid at or above this final cut-off price are considered for shares allotment, subject to the applicable allotment rules.

Fixed Price Method

In the Fixed Price Method, shares are offered at a single, predetermined price. Investors must apply and pay the 100% amount in advance at the set price, without any bidding.

How to Apply for an IPO

Here’s how you can apply for an IPO.

Method 1: Application Using Stock Broker's App

• Log in to Your Stockbroker’s App

Access the stockbroker’s application or the website for trading and log in by entering your password and credentials.

• IPOs Segment

Go to the IPO segment of the app. A list of upcoming IPOs will appear on your screen.

• Select the IPO

Select the company whose IPO you want to apply for.

• Bid for the IPO

Based on the IPO’s pricing method, bid for the shares. The bid has to be placed in multiples of the Lot Size. You can either enter your own bid amount or choose the Cut-off Price.

• Provide Payment Details

Review your bidding details and pay via the UPI ID connected to your bank account.

Method 2: Application Through ASBA (Internet Banking)

You can also apply for an IPO using the Application Supported By Blocked Amount (ASBA) method, which is the conventional and secure process provided by all big banks.

• Login

Log in to your bank’s website and navigate to the Net Banking section.

• Find ASBA

Access the ASBA facility on the bank’s website.

• Go for IPO

Navigate to the upcoming IPO section and select the company whose IPO you wish to apply for.

• Details

Fill in the details, including your PAN number, Demat account number, bid quantity, and bid price, and apply for the IPO.

In this method, the application amount will be blocked in your bank account until the shares are allotted to you. If you receive an allotment, the blocked funds will be transferred, and if not, the amount will be unblocked and ready for use.

Advantages of Investing in IPOs

The following are the Advantages of IPO investing.

Listing Gains

If there is high demand for the stock, its shares will list and start trading on the stock exchange at a price above the offering price, allowing investors to earn an instant profit.

Timing and High Return Opportunity

An IPO allows you to invest in a company whose valuation may increase significantly over time. An investment in a strong company can generate huge returns in the long run.

Exposure to New Industries

Most companies that opt for an IPO operate in emerging sectors, giving you the chance to diversify your investment portfolio by investing in new sectors.

Transparency in Pricing

The firm that plans to raise money through the issue of an IPO is required to publish a prospectus, making the pricing transparent and giving you financial information about the company.

Highly Liquid

Once a company’s shares are listed and begin trading on the stock exchange, they generally become highly liquid, making it easier for investors to buy and sell them.

Risks of IPO Investing

The following are the risks of IPO investing.

Overvalued

In many cases, firms and underwriters price IPOs based on future expectations for the firm rather than present financial figures. If these expectations are not met, the share price may decline after listing.

High Volatility

Newly listed stocks often tend to have highly volatile prices when first listed and even in the coming weeks of trading as the market determines their fair value.

No Track Record

Unlike existing public firms, IPO issuers do not have an existing public market track record of how the company performs when it goes public.

No Guarantee of Shares Being Allocated

Given high demand for IPOs, they tend to get oversubscribed. The shares would be allotted through a lottery system; thus, there is a possibility that you may not be allocated any stocks.

Expiry of Lock-up Periods

Early-stage investors, promoters, and anchor investors are not allowed to sell their shares for a certain period (for example, 30 to 90 days). Once this period expires, a large number of shares may enter the market, potentially putting downward pressure on the stock price.

Information Asymmetry Between Promoters and Institutional Investors

Promoters and institutional investors have more understanding about the business, compared to retail investors.

FAQs

What is an IPO?

IPO stands for Initial Public Offering. This is when a company offers its shares to the public for the first time. An individual can purchase shares and own a part of the business.

How do I apply for an IPO?

This can be done through your bank’s ASBA services or a stockbroker's application.

What is the minimum investment in an IPO?

The minimum investment varies depending on the lot size and issue price of an IPO. Usually, most main board IPOs require an investment of about ₹10,000 to ₹15,000.

Is IPO investing good?

Investing in an IPO is a good choice if the decision is backed by thorough research into the company's working, finances, and growth.

Can I sell my IPO shares on listing day?

Yes, once your shares are allotted to your Demat account and the company goes public, you can either sell or hold them as a long-term investment.

What if I didn't get an allotment in the IPO?

If you are not allotted shares, then the blocked amount will be refunded to your bank account. There will be no deduction from your account.