What is an IPO or Initial Public Offering?

Short Answer

IPO or Initial Public Offering is the process through which a private company goes public by offering its shares to the public for the first time.

Detailed Answer

IPO or Initial Public Offering is a great way of raising funds by a private company from the public sector for the first time. It helps the business to elaborate and widen its wings in its respective field. A challenging way as well, as it is really difficult to attract people for investments.

The name of the Company gets listed on stock exchange. It can be a new company or an old company that thinks of going public by selling its shares.

Reasons for raising IPO by companies:

  • Raise funds for expansion of its business and services, invest in infrastructure or repay loans etc.
  • Increase liquidity
  • Adds to its credibility
  • Open new doors for mergers and acquisitions

As an investor, you should keep in mind the following points while putting your money in an IPO:

  • Check the Red Herring prospectus for the IPO details and fund utilisation plans.
  • Be cautious and go through the fine prints before putting money.
  • Analyse the credit background and company's financial performance.

If you are looking for better opportunities to buy shares of a company before they go public, then Initial Public Offering or IPO is the ideal option. It is an accessible mode of investment as your wealth grows manifold within a short time.

The next thing to do in IPO account is subscribing for one.

How to invest in IPO? Account Opening Process:

For this reason, you need to follow the mentioned steps:

  1. Obtain a follow-on public offer application form. It is available for share brokers, lead managers, syndicate members, and collecting banks.
  1. The physical copy is available at major commercial streets in most towns. They are also available outside BSE.
  1. In case of fixed-rate prices, you must deposit the duly filled application form, demand draft or cheque for the desired amount.
  1. The names and addresses are present in the application form. Remember, applications get accepted if payment is done through DD or cheques.
  1. Before submission, screen the application, as any typo could reject your application.

You could also apply for IPO through your trading or bank account. Some banks have a 3-in-1 deal where you can open bank, trading, and Demat Account in one place.

You don't have to become a financial expert. Just get a brief idea of the basics to make yourself financially aware of where you are investing your money.

Tagged With: ipoinitial public offering
Categories: Stock Market
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Discussion (7)

    IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. Why do the company go public? 1. The existing private shareholder might want to make an "exit" and sell their shareholders to public. 2. The company might want to make an expansion or an acquisition or to have some more money in the bank 3. Both the combination of the above point.

    The Initial Public Offering or IPO is an investment scheme wherein private start-ups distribute shares to the public, usually in the form of equities. IPO stocks allow the public sector an ownership in the company’s profits, while also providing strong financial backing to incipient private firms. A lot of investors are skeptical about investing in IPO due to the risks involved. But here are some benefits you may want to consider: 1. Possibility of high returns as IPO is a stock investment. 2. Suitable for long-term goals such as post-retirement plans and buying property. 3. Minimal investment rates as small start-ups usually offer huge discounts. 4. Transparencies in dealings, as companies are required to provide extensive details about themselves in their prospectus. 5. Good for beginner investors due to low investment rates.

    Initial Public Offering (IPO) also known as “going public” is a complex decision which calls for appropriate planning and careful consideration. It’s a process wherein a privately held company for the first time, issues its stock to the public. IPO is a dream for many small businesses as it transforms a private company into a public entity thereby helping the company get exposure and improved credibility. IPO financing is crucial when a private company seeks to take its business to the next level. With IPO financing, the company becomes a part of the stock market whose shares are made available to the general public for investment. Therefore, a significant reason why people opt for IPO financing is for growth and expansion. However, founders or venture capitalists may always influence this decision if they are eager to cash out on their investment.

    A good way to select an IPO is to go through the Company's Red Herring prospectus. You can get a brief idea about its business plan and objectives of issuing an IPO. Going through its financial statements and analysing them might not be possible for common man. But, you can have a quick review of debts, whether the IPO is to repay debts? Check for Company revenues, profits etc. Most important, at what price the shares are being offered? Price Earning or PE ratio is a good indicator.

    An IPO or an Initial Public Offering is when a company decided to go public. Basically a company issues its shares to the public through an IPO. Through the shares that are made public, the company earns the capital investment, which is utilized by the company for its functioning. There are a number of reasons as to why a company goes public. The reasons could be to raise capital for growth, increase public awareness, allowing early investors to sell their stake to earn money, etc. Once an IPO issue has happened, investors therefore have the opportunity to earn a share in the company.

    As a retail investor, choosing an IPO seems to be a difficult task especially for me. Company raises funds through an IPO. But, it's not easy to select the best IPO. I have heard that one needs to be cautious while putting money in IPOs. Is it true and to what extent? Not every IPO is a good choice. So, how to decide which IPO to subscribe? If an IPO is oversubscribed on day 1 does that mean its doing fairly good? I have very less idea on IPOs, mentioned what info I have gathered from friends. Can anyone guide in this.

    IPO or Initial Public Offering is an excellent way of involving the mass public within your company. This is a good way of expanding your horizons. The money generated through it can be used for expanding the companies operations. But before launching an IPO, the PR team needs to run a strong campaign.

Related FAQs

Why did some of the recent IPOs gave poor listing gains? Is the IPO craze over?

IPOs have been extremely popular lately as a result of increased retail participation, ongoing bull run, and massive listing gain opportunities. However, the Indian stock markets went through a minor correction which resulted in a muted performance of some IPOs. The market negativity coupled with the lofty valuations of some of the IPOs led to poor listing gains, but the craze might not be over.

How to check IPO allotment status in India?

IPO's (Initial Public Offering) is very popular right now. Therefore getting an allotment is not easy. There are two different ways in which you can find out your allotment status. These are through the BSE India website and the company Registrar's website. Know the details and another bonus way of finding out allotment status here.

Can we sell IPO shares immediately?

In an Initial Public Offering (IPO) a company sells its shares to investors in order to raise money. As a retail investor, you can apply for an IPO from the primary market in order to get the shares offered by the company. Once the shares get listed on the secondary market, you can sell your shares provided you have received an allotment in the primary issue.

What happens if the IPO is not fully subscribed?

The SEBI (Securities and Exchange Board of India) requires every IPO to get at least an overall 90% subscription to proceed to the allotment process. If an IPO fails to get a 90% overall subscription (including the QIB, NII, and Retail category) by the last day of the issue then the IPO is cancelled and the money collected from the investors is refunded back.

Can a minor apply in IPO?

Have you ever wondered id a minor can apply for an IPO? Yes, a minor can apply for an IPO given that he/she has a PAN card and a Demat account.

How to increase IPO allotment chance?

Subscribing for an IPO with multiple accounts, avoiding last-day applications, and choosing minimum bids are few ways to increase IPO allotment chances.

What Happens when an IPO is oversubscribed in India?

IPO is alloted by following the pre-defined rule laid down by the SEBI. When an IPO is oversubscribed it gets allocated by considering the minimum lot size. If still not solved, then a computerized draw of lots is conducted.

Can we apply for an IPO online on Sunday?

Yes, you can apply for an IPO application on Sunday as well but through an online application. But, you need to keep few points in mind before doing that.

How to sell IPO?

You can sell your shares of an IPO through the stockbroker application or website. Let's see what's the simple process to sell the shares you hold.

I want to invest for short time so please let me know which IPO will give positive gain?

Selling the IPO shares on the first day of its listing could get you considerable postive gains. But there is a higher chance for the prices to rise and even fall if you wait for a more extended period.