Basic concept of IPO

When a private company lists its equity shares in the Share Market to grow its business and collect funds from the public, it’s called (Initial Public Offering) IPO.
If a company gets its shares listed, then it becomes a private to public company, after which its shares can be easily bought and sold in the market.Every month many companies have IPOs and some of them have good IPOs, due to which investors invest their money and get a better return.

What is an IPO?
When any company needs finance or money, for that it goes to the public, banks or financial institutions and receives funds from them.There are two ways to get finance from the public –
1. By acquiring fund, they can be made partners in the ownership of the company, the capital or funds that are collected in this way is called Share Capital.
2. The capital that is taken from the public is treated as debt, and that money is returned at a certain time, it is called Debentures or Loan Capital.
When a company wants to raise funds from Public in Equity, then at that time it issues its General Shares for the first time in public by getting listed in Share Market, this process is called Initial Public Offering (IPO).
Those who want to buy the company’s shares, can apply and after receiving all the applications, the company distributes the shares to the applicants in exchange.
In this way, the shares of the company reach the public and the company receives the capital, after which these shares can be bought and sold in the market.

What are the prospectus? (Meaning of prospectus)
Prospectus is the most important document of any IPO.
Whenever a company issues its IPO, first of all it issues the Prospectus of Public Issue.It is a type of Legal Document which contains detailed information related to Company and Public Issue or IPO, such as –

  • What will be the share price?
  • Where will the money received be used?
  • How much was the company’s profit
  • How many shares will be issued?
  • Who is the Director and IPO Manager.
  • Also many important information.

This prospectus is approved by SEBI and in it you will get all kinds of information related to the IPO and the company. You should read Prospectus thoroughly before investing in an IPO.

Why do companies issue IPOs?
When a company has to change its present form or to increase its present size, then capital is required at that time. To collect this capital, she brings public issue or IPO to the public.

How does the company launch an IPO?The IPO brought by any company is listed within a total of 6 steps –


1. IPO Opening
During IPO Opening, any person can start applying in IPO from 9 am.

2. Closing of IPO
The closing of the IPO comes 3 to 5 days after opening and on this day, you can apply the final application in the IPO by 5 pm.

3. IPO Allotment
On the day of allotment, a person can check the status to see if he has IPO allotment.

4. Money Refund
On the very next day, those who do not have IPO allottees are refunded.

5. Shares Credited
Shares are then delivered in actual to those people who have allot shares – these shares are put in Demat Account.

6. IPO Listing
Finally, there is an IPO listing in the stock market and its real price is visible.

Important words related to IPO
To understand IPO more thoroughly, it is very important to know some important words related to it –
1 Issue Name (Issue)
This is the name of the company that issues the IPO. In other words, Shares’ names are known as the company issuing them, such as – if Domino’s Pizza Company brings its IPO. Issue’s name will also be ‘Domino’s Pizza’.

2 Types of Issue
The company can issue two types of issues -*Book Building*Fixed priceInvestors in Book Building can buy shares or shares from the company by bidding.
While there is no change in the price of shares in Fixed Price and investors buy them at the same price at which the company issues them.

3 Price Band
Most companies decide their own price at the time of issuing their IPO.But companies that are in infrastructure and its related areas have to get permission from SEBI and / or Reserve Bank to fix the price.

4 cut off price
When the company issues shares through Book Building, the price that the investors decide when allot such shares to investors is called the cut-off price, such as – if a company issued its shares for Rs.10 but while allocating the shares If their price is Rs 11, then this 11 rupees will be considered as the cut-off price of these shares.

5 Cut Off Date and Time
The company sets a date and time for applying its shares. Investors have the facility to apply for IPO till this date and time. Generally, the date is 3 to 5 days after the IPO is brought to the market, eg if the dominoes are bringing their shares to the market on 25 August, then by 5 pm on 29 August, investors can apply for these shares or apply for subscription. Are After this the company can start the process of its next phase.

6 Lot Size
During the IPO, the shares are always bought in a lot ie group and that lot contains the number of shares of the company based on which an investor can apply for an IPO.

7 Types of Investors
There are many types of investors who invest in IPO, such as –
*Retail Investors
*Anchor Investors
*Non-Institutional
*Qualified Institutional
*Company Employee’s

8 Subscription
This means how many people have applied for a single IPO.For example, if a company issued an IPO for 50,000 shares and if for that IPO A total of 1.5 lakh people come to the application – that is, the subscription for that IPO will be 3 Times.

Who can invest in an IPO?
To invest you have –
Pan number
Bank account
Demat account

It should be so that you are able to invest in any company.
Any person can invest up to 2 lakh rupees in IPO as a Retailer.
If you wish, you can keep the shares of the company in physical form as a certificate or if you wish, you can also transfer them in Demat Account.

How to invest in IPO?
In India, if you want to invest in IPO of a company as an Investor, then for your convenience the Corporate Ministry of India and SEBI have laid down some rules and guidelines which are available on their website. To invest in an IPO, you must have a demat and trading account.

How to apply in IPO –
There are two ways: First, you can apply through Net Banking by visiting your bank’s website.
In another way, you can invest in IPO through your broker.

Other things that should be taken care of.
Prospectus of the company should be thoroughly analyzed before investing.
*Share price issued by the company
*Goodwill in that company’s market
*Carefully study the credibility of the promoters of the company.
Before investing in an IPO, you should compare it to another company. Apart from this, you can also take care of the ratings of companies in the investment market. To invest under IPO, you have to have a bank account, demat account and PAN number.

Conclusion – Hope that you have understood the IPO and all the information related to it easily.
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