IPO FAQs

IPO FAQs – Frequently Asked Questions About IPOs

Welcome to our IPO FAQ section, where we address common queries about Initial Public Offerings (IPOs). Whether you’re new to investing or looking for clarity on specific IPO-related topics, this guide will provide you with essential insights.

1. What is an IPO?

An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time. Through an IPO, a company becomes publicly listed on a stock exchange, enabling the general public to invest in its shares.

2. Why do companies go public through an IPO?

Companies choose to go public for several reasons:

  • To raise capital for expansion, debt repayment, or operational growth.
  • To increase their visibility and credibility in the market.
  • To provide liquidity to existing shareholders and early investors.
  • To enable public ownership and potential future fundraising.

3. Who can apply for an IPO?

Any individual or institution with a valid Demat account can apply for an IPO. Investors need to meet the eligibility criteria specified by the issuing company, which may include:

  • A valid Permanent Account Number (PAN).
  • Sufficient funds in the linked bank account.
  • Compliance with regulatory requirements.

4. What are the different types of IPO investors?

IPO investors are generally categorized into:

  1. Retail Individual Investors (RIIs): Individual investors applying for amounts up to ₹2 lakhs.
  2. Non-Institutional Investors (NIIs): High-net-worth individuals (HNIs) applying for amounts exceeding ₹2 lakhs.
  3. Qualified Institutional Buyers (QIBs): Institutional investors such as mutual funds, banks, and insurance companies.

5. How can I apply for an IPO?

You can apply for an IPO using the following methods:

  • ASBA (Application Supported by Blocked Amount): Through your bank’s net banking or mobile application.
  • UPI (Unified Payments Interface): By linking your Demat account to your UPI ID via a trading platform.
  • Brokers or Trading Platforms: Many brokers offer IPO application services online.

6. What is a Red Herring Prospectus (RHP)?

An RHP is a detailed document filed by the company before an IPO, containing critical information such as:

  • The company’s business model and financial statements.
  • Risk factors associated with investing in the IPO.
  • Details about the offer and the use of proceeds.
    Investors are encouraged to read the RHP to make informed decisions.

7. How is the IPO price determined?

The IPO price can be determined through two methods:

  1. Fixed Price Offering: The company sets a fixed price for its shares.
  2. Book Building Process: Investors bid within a price range, and the final price is determined based on demand and investor response.

8. What is the difference between the Issue Price and Listing Price?

  • Issue Price: The price at which shares are offered during the IPO.
  • Listing Price: The price at which shares are traded on the stock exchange on the first day of listing.

9. Can I sell IPO shares immediately after listing?

Yes, you can sell IPO shares immediately after they are listed on the stock exchange, provided they have been credited to your Demat account. However, long-term holding is advised for better returns, depending on the company’s performance.

10. What are the risks associated with IPO investments?

IPO investments carry certain risks, such as:

  • Volatility in the stock price post-listing.
  • Overvaluation or underperformance of the company.
  • Market and economic fluctuations impacting the stock price.

11. What happens if my IPO application is rejected?

If your application is rejected or shares are not allotted due to oversubscription, the blocked amount in your bank account will be unblocked within a few working days.

12. Can an IPO be oversubscribed? What does it mean?

Yes, an IPO can be oversubscribed when the demand for shares exceeds the number of shares available for allocation. In such cases, shares are allocated proportionally or through a lottery system for retail investors.

13. What is a Lock-In Period in an IPO?

The lock-in period is a restriction during which certain investors, such as promoters or pre-IPO shareholders, cannot sell their shares. It is typically 6 months to 1 year after the listing date.

14. How can I track IPO allotment status?

You can track the allotment status on the registrar’s website by entering your PAN, application number, or Demat account details. The allotment is usually finalized within 7 working days after the IPO closes.

15. Are IPO investments guaranteed to make a profit?

No, IPO investments are subject to market risks. While some IPOs deliver strong returns, others may underperform. Researching the company and assessing market conditions is essential before investing.

Scroll to Top