Imagine a small bakery run by a passionate baker and a few close friends. The shop is successful, but to open more branches, buy better ovens, and hire more staff, they need a lot more money than their savings or bank loans can provide.
One day, the baker decides to open the doors not just to loyal customers, but to the entire city, offering everyone a small “piece” of the bakery in exchange for money. That exciting moment when the bakery first invites the public to own a share of it is exactly what we call an IPO- Initial Public Offering.
This is the story of how a private company becomes public. Let’s walk through this journey together in simple terms, just like explaining it to a friend who has never invested before.
What is an IPO?
Before we proceed, it is important to understand the meaning of an IPO. IPO Meaning - An IPO or Initial Public Offering is the process by which a private company offers its shares to the public for the very first time and gets listed on a stock exchange.
In an IPO, a company fundamentally changes by making it available for public ownership. Before an IPO, the ownership of the company is solely in the hands of the founders and a small number of private investors. After the IPO, ownership of the company is available to the general public, and any retail investor is free to purchase shares of the company.
In India, the process of IPO is monitored by the Securities and Exchange Board of India (SEBI), while shares are listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
In simple words:
IPO = Company + Public Money + Stock Market Listing
Why Do Companies Launch an IPO? Benefits, Risks & Real Reasons Explained
Companies don’t go public randomly. An IPO is usually launched to achieve one or more of the following goals:-
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- Raise capital for expansion, technology, or new projects.
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- Reduce debt and strengthen the balance sheet.
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- Provide exit to early investors and venture capitalists.
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- Increase brand credibility and public visibility.
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- Create liquidity for existing shareholders.
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- Once listed, a company can also raise funds more easily in the future via follow-on offerings.
If you want to understand the complete picture of why companies choose this path, including detailed benefits and associated risks, read our in-depth guide:-
Why Do Companies Launch an IPO?
Companies don’t go public randomly. An IPO is usually launched to achieve one or more of the following goals:-
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Raise capital for expansion, technology, or new projects.
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Reduce debt and strengthen the balance sheet.
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Provide exit to early investors and venture capitalists.
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Increase brand credibility and public visibility.
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Create liquidity for existing shareholders.
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Once listed, a company can also raise funds more easily in the future via follow-on offerings.
If you want to understand the complete picture of why companies choose this path, including detailed benefits and associated risks, read our in-depth guide: Why Do Companies Launch an IPO? Benefits, Risks & Real Reasons Explained.
Types of IPO
Understanding the types of IPO helps investors evaluate how shares are being offered and priced.
1. Book Building IPO
Book Building IPO is the most common type of IPO in India.
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A price band (e.g., ₹90 - ₹100) is announced.
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Investors bid within this range.
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The final price is discovered based on demand.
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Market-driven pricing and better transparency.
2. Fixed Price IPO
In a fixed price IPO, the company sets a fixed price for shares.
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Investors know the exact price in advance.
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No bidding range.
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Less flexibility and weaker price discovery.
3. New Share IPO
In a new share IPO:-
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The company makes and sells new shares.
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The money raised goes directly to the company.
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Used almost exclusively for company growth, expansion, and paying off company debt.
4. Offer for Sale (OFS)
In an OFS:-
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Stakeholders sell their shares.
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The company does not receive funds.
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Company promoters and private equity investors use most OFS for a partial exit.
IPO Eligibility: Who Can Invest in an IPO?
IPO eligibility in India is quite simple and very inclusive.
Retail Investors must have:-
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A PAN card.
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A Demat account.
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A Bank account (ASBA-enabled).
Importantly, there is no minimum income limit to apply for an IPO.
Types of Investors in an IPO
There are 3 levels of investors in an IPO:-
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Retail Individual Investors (RII)- Small stakeholder investors.
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Non-Institutional Investors (NII/HNI)- Large high-net-worth individuals.
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Qualified Institutional Buyers (QIB)- Investment banks, mutual funds, foreign institutional investors.
Each type of investor has a separate allocation in the IPO allotment.
What Happens When a Company Goes Public? Complete IPO Process
Here’s the step-by-step story of how a company actually goes public:-
Step 1: The Appointment of Investment Bankers
The company employs merchant bankers/underwriters to facilitate and structure the IPO.
Step 2: Draft Red Herring Prospectus (DRHP)
The DRHP must be submitted to SEBI and must contain:-
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Business model
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Financials
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Risk factors
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Intended use of the funds from the IPO.
Step 3: SEBI Approval
SEBI reviews the documents and ensures transparency, protection of investors, and compliance with applicable regulations.
Step 4: Price Band & IPO Opening
The company publishes:-
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IPO opening and closing dates.
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Price range.
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Lot size.
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Investors can apply for shares via ASBA.
Step 5: IPO Allotment
When the IPO subscription is closed:-
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Retail segment shares are allocated either via a proportionate or a lottery system.
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Unutilised funds are returned to the investors.
Step 6: Listing on the Stock Exchange
The company’s shares are listed on the respective stock exchange (NSE/BSE) and are offered for trading on the secondary market.
For a more detailed walkthrough of the entire journey from DRHP filing to listing day, check our dedicated guide: What Happens When a Company Goes Public? Complete IPO Process Explained in India
Reasons IPOs Attract Investors
IPOs pull in everyday investors for several exciting reasons:-
1. Early Investment Opportunities
With an IPO, investors are granted the opportunity to invest in the company when it goes public for the first time, possibly right before it achieves further growth.
2. Potential for Listing Gains
On the first day of trading, most IPOs are offered at a substantial premium, providing investors the opportunity to earn short-term profit.
3. Development of Wealth Over Time
Investors in successful companies can potentially earn multibagger returns long after the IPO.
4. Portfolio Diversification
Investing in IPOs enables investors to diversify across sectors, market caps, and business models.
5. Transparency and Regulation
Listed companies must adhere to quarterly disclosures, corporate governance, and SEBI regulations. This increases information availability.
Risks of IPO Investment
While the IPO advantages are many, the potential risks should also be acknowledged:-
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Overvaluation.
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Subscriptions based on hype.
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Lack of historical data.
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Volatility of an IPO after it lists.
Investors should focus on the fundamentals, not the grey market.
IPO Data Snapshot: India’s Booming IPO Market (2025)
India witnessed a historic IPO boom in 2025:
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373 total IPOs (103 mainboard + 270 SME) raised approximately ₹1.95 trillion.
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Mainboard IPOs alone raised a record ₹1.76 lakh crore (some reports cite ₹1.75–1.83 lakh crore).
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This was one of the highest fundraising years globally for IPOs.
IPO vs. Secondary Market: Key Difference
|
Aspect |
IPO |
Secondary Market |
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Stage |
First public issue |
After listing |
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Price |
Fixed or band |
Market-driven |
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Risk |
Higher uncertainty |
Comparatively lower |
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Data availability |
Limited |
Extensive |
SME IPO vs Mainboard IPO
In India, IPOs are broadly divided into Mainboard IPOs and SME IPOs. Understanding the difference is important for retail investors.
|
Feature |
Mainboard IPO |
SME IPO |
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Exchange |
NSE / BSE |
NSE SME / BSE SME |
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Minimum Investment |
₹12,000 – ₹15,000 approx |
₹1 lakh+ (higher lot size) |
|
Company Size |
Large, established companies |
Small & medium enterprises |
|
Risk Level |
Moderate |
High |
|
Liquidity |
High |
Low |
In simple terms:-
Mainboard IPOs are relatively safer as companies are more established, while SME IPOs carry higher risk but may offer higher returns.
For beginners:
It is generally better to start with Mainboard IPOs.
How to Apply for an IPO (Step-by-Step)
Applying for an IPO has become very simple and can be done online.
Step-by-step process:
Step 1: Have a Demat Account
You must have a Demat and trading account. Click to open a Demat Account with Zerodha.
Step 2: Select the IPO
Go to the IPO section in your broker app (Zerodha, Groww, Angel One, etc.) and choose the IPO.
Step 3: Place Your Bid
Select the number of lots
Enter your bid price within the price band
You can also choose “Cut-off price” (recommended)
Step 4: Payment via ASBA
The amount is blocked in your bank account (not deducted immediately).
Step 5: Wait for Allotment
After the IPO closes, allotment is finalized.
Pro Tip:
Always select the Cut-off price to increase your chances of allotment.
How IPO Allotment Works
IPO allotment is often confusing for beginners, but it’s quite simple:
Case 1: IPO is under-subscribed
If demand is low:-
Everyone gets full allotment
Case 2: IPO is over-subscribed (most common)
If demand is high:-
Allotment happens through a lottery system in the retail category
Example:
1,00,000 applicants
Shares available for only 20,000 applicants.
Allotment is done randomly
What happens to your money?
If you get allotment→ Amount is deducted.
If you don’t get allotment→ Amount is unblocked.
Usually, funds are released within 2–3 days.
How to check allotment status?
On registrar websites (Link Intime / KFintech)
Or through your broker app
Important:
Applying with more money does not increase your chances in the retail category.
What is GMP (Grey Market Premium) & Should You Trust It?
You may often hear about “GMP” during IPOs.
What is GMP?
GMP (Grey Market Premium) is the unofficial price at which IPO shares are traded before listing in the grey market.
Example:
IPO price = ₹100
GMP = ₹50
Expected listing price ≈ ₹150 (based on market sentiment).
Why you should not blindly trust GMP
1. It is unofficial
→ No regulation or transparency
2. Can be manipulated
→ Prices can be influenced by large players
3. Sentiment-driven
→ Changes rapidly based on news
4. Not always accurate
→ Many IPOs list below GMP expectations
Smart investor approach:
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Use GMP only as a sentiment indicator.
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Make decisions based on fundamentals, valuation, and business quality.
Golden Rule: “Do not invest in an IPO based on GMP — invest based on the company.”
What to Analyse Before Investing in an IPO
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Revenue and profit growth.
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Level of debt.
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The credibility of the promoters.
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Future of the industry.
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Valuation of the firm in comparison to its peers.
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Expected use of the IPO funds.
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Analyse the DRHP.
Final Thoughts
Knowing what an IPO is, the types and steps in the IPO process, eligibility, benefits and drawbacks helps you understand how to invest in an IPO successfully. There are possible rewards, but they require the right amount of research, discipline, and patience for the correct outcome.
The long-term wealth creator is the quality of the business, not the listing day circus.
DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.
