Initial Public Offering (IPO) Definition and how does it work?


There are many of us who want to invest in IPO (Initial Public Offering) but due to lack of correct information about IPO, we are afraid to invest in IPO, we will answer all the questions related to IPO in this blog.

What is IPO (Initial Public Offering)?

The full form of IPO is Initial Public Offering. when a private company sells shares of stock to the public for the first time and wants to raise money through the public and wants to list it in the stock market, then it is called IPO (Initial Public Offering). Check out Upcoming IPO.

Why any company brings IPO :

There can be mainly two or three reasons for this, first if any company wants to expand its company, then it requires a lot of money, secondly, to repay the company’s debt or any loan, it brings IPO and thirdly Existing Shareholder Stake. want to make a profit by selling.

Why any company needs an IPO :

Because IPO is the easiest way to raise money from equity funds because there are more number of investors in the public, when the number of investors is more, then there will be more liquidity in the stock, which will lead to more trading and large investors can withdraw their money easily.

Initial Public Offering

Types Of IPO :

IPOs can be of two types : (1)- Book Building Issue and (2)- Fixed Price Issue.
In the Book building issue, whatever price band is fixed by the company, the difference of the lowest premium ranging from 15 to 20% is kept, e.g. if the price band of XYZ company’s IPO is ₹195 – ₹210, then the lowest price should be floor price. And the Highest Price is called the Cut Off Price and in the Fixed Price Issue, the price band is fixed.

whichever company comes with the IPO, that company allots its shares in the form of a lot, in which the minimum is up to ₹15000 for 1 lot and the maximum is Lot size up to ₹ 200000 is kept for retail category investor.

For example if you want to bid then you have to bid by lot if there are 71 shares in 1 lot then you have to bid 71, 142, 213, 284,
eg – 1 lot – 71210= 14910, 2 lot – 142210= 29820
3 lot – 213210= 44730 Highest 13 lot = 92314910=193830

IPO (Initial Public Offering) Process :

Any company that wants to bring a public issue (IPO), then it has to appoint a merchant banker. So that the information of all the big and small things of the company can be given in DRHP and a registrar has to be appointed so that allotment of shares can be done easily.
Talking about merchant banks, in today’s date all the major banks be it Kotak Bank, ICICI, Axis, SBI or HDFC, they all have their own investment banks which process to bring IPOs.

The main book manager or book runner is called the lead manager, these merchant bankers follow the SEBI guidelines by preparing the draft paper and submit it to SEBI and only after it is approved by SEBI, they can do the IPO investors. open for investors to place their bids.

The time period of any company’s IPO is for 3 to 10 days in which it is open for 3 days in which investors place their bids and according to SEBI rules, that IPO has to be allotted within 6 days and It has to be listed in the stock market

Initial Public Offering

Let’s understand it by giving example :

Step 1 – Let’s say XYZ company’s IPO (Initial Public Offering) was opened from 1st to 3rd and in which investors place their bids, there are three categories of investors
In which institutional investors invest money like Foreign Institutional Investors, Investment Fund, Venture Capital Fund, Pension Fund, Provident Fund, Commercial Banks, Insurance, etc.

And second are of HNI/NII category who come in above two lakhs category and bid and third are retail investors who place their bids below two lakhs Sometimes it is seen that the IPO gets oversubscribed, meaning that there are people buying more shares than the shares that come for bidding in the IPO, due to which the IPO becomes oversubscribed, in such a condition the IPO allotment is done through the lottery system.

Step 2 – After the IPO is closed, according to the SEBI rules, allotment of the IPO has to be done within 6 days, in which the role of the registrar is important, the shares are credited in the demat account of those to whom the shares have been allotted and those to whom the shares have been allotted. Shares not allotted, their money has to be refunded

Step 3 – In this process the listing of the stock is done on the stock exchange BSE and NSE and people start doing their trade.

Note : If you ever have any question for IPO (Initial Public Offering) then you can tell us by commenting, we will try to answer that question.


Initial Public Offering (IPO) Definition and how does it work?

Leave a Reply

Trade with LTP Calculator