Pocketful

Category: IPO

  • Why Does a Company Go Public & Launch IPO? 

    Why Does a Company Go Public & Launch IPO? 

    This question comes to the mind of every person who is interested in the stock market. When a private company offers its shares to the public for the first time to raise capital, it is called an Initial Public Offering (IPO). Its main objective is to raise funds from investors for expansion, reducing debt, and other purposes.

    In this blog, we will discuss the various reasons due to which the company goes public and launch an IPO in detail.

    Understanding IPOs

    When a private company offers its shares to the general public for the first time, it is called Initial Public Offering (IPO). After this process, the company gets listed on the stock exchange and anyone with a trading and demat account can buy its shares. The advantage of this is that the company can raise funds quickly and can act quickly on its business plans.

    Becoming a Public Company :  After bringing an IPO, the company is identified as a public entity. Now it has to make its financial information public every quarter and must comply with regulatory frameworks set by bodies like SEBI and stock exchanges. This gives transparency to investors and also increases the brand value of the company.

    • Latest scenario of IPO in India : The IPO market in India performed tremendously in the financial year 2024-25. During this period, companies raised a total capital of ₹3.71 lakh crore — which is 92% more than last year. In 2024 alone, the companies raised ₹1.67 lakh crore through IPOs, which is the highest in Asia.
    • Global Comparison: India now ranks first in terms of number of IPOs. While the US and China saw 205 and 130 IPOs getting launched in 2024, India’s count stood at 332.

    Read Also: What is the IPO Allotment Process?

    Reasons Companies Go Public

    Various reasons due to which the companies go public are listed below:

    • Access to Capital : Every business needs funds to expand whether it is to open a new manufacturing plant, invest in technology or repay old debts. By bringing an IPO, companies can raise large amounts of money directly from the general public. These funds help them to act on the business plans quickly, without the tension of repaying loan or interest payments.
    • Increasing Brand Value and Public Profile : When a company is listed in the stock market, its brand identity and credibility automatically increases. Its image becomes strong among investors, media and industry due to high regulatory requirements of SEBI. This also easily helps in getting new partnerships and clients and builds trust.
    • Exit option for Early Investors : Before bringing an IPO, the shares of the company are owned by a few sophisticated investors and founders. But through IPO, they get a chance to sell their shares. This process gives them liquidity, which is not easily available in private companies.
    • Attracting and retaining talent : In today’s competitive world, retaining talent is very important. After becoming a public company, employees with vested ESOPs can easily sell their shares as per the company’s ESOP (Employee Stock Ownership Plan) policies. After the IPO, the shares are traded and if the company’s share performs well, the trust of the employees in the company’s future increases and they are more inclined to stay with the company. 

    For all these reasons, bringing an IPO is not just a significant event in a company’s journey, but a strategic decision which can take the company on the path of long-term success.

    Read Also: IPO Application Eligibility Criteria

    Advantages of Going Public

    When a company goes public by launching an IPO, it not only receives funds but also many strategic and long-term benefits. Let us understand these at a glance:

    BenefitDescription
    Capital AcquisitionThe company gets significant capital from the public, which it can use for various purposes.
    Market VisibilityListed companies receive more attention from the media and investors, which increases brand visibility and credibility.
    Share LiquidityAfter the IPO, shares can be easily bought and sold, providing liquidity to old investors and employees.
    Market-Driven ValuationThe stock market participants play a key role in determining the value of a company, which becomes a benchmark for future deals and investments.
    Employee IncentivesPlans like stock options and ESOPs make it easier to attract and retain talent.
    Better Borrowing PowerIt is easier for public companies to get loans from banks on better terms as their financial information is publicly available.
    TransparencyStrict regulatory rules improve the governance and trustworthiness of the company.

    Disadvantages and Challenges 

    There are many benefits of a company going public, but there are some challenges and disadvantages associated with it as well. Let us know the major disadvantages and difficulties that a public company has to face:

    • Regulatory Compliance : A public company has to follow strict rules of SEBI and other regulatory bodies. This includes regular financial reporting, audits and providing comprehensive financial information, which can be time-consuming and expensive.
    • Market Pressure : The expectations of investors and the market increase a lot. The company’s management may feel the pressure to show good results every quarter, which can sometimes affect long-term business plans.
    • Loss of Control : Depending on shareholding structure, founders may experience dilution of control and increased accountability to public shareholders. They have to consider the interests of other investors, which complicates decision making.
    • High Costs : Advisors, investment banks and lawyers have to be paid in the IPO process. Apart from this, regular reporting and other corporate expenses also increase after becoming a public company.

    Read Also: Why Invest in an IPO and its Benefits?

    The IPO Process: A Step-by-Step Guide

    Let us know the main steps a company follows to launch an IPO:

    StepDescription
    Selection of UnderwritersThe company first selects the investment banks or firms that will manage the IPO. These underwriters help with pricing, marketing, and other due diligence required in the IPO.
    Due DiligenceThe financial, legal and operational status of the company is thoroughly examined to ensure that investors get accurate information.
    Regulatory FilingsThe company submits a Draft Red Herring Prospectus (DRHP) to SEBI. After review and incorporating changes based on SEBI’s comments, the final RHP (Red Herring Prospectus) is filed for public subscription.
    Pricing the IPOThe initial price of the share is determined by looking at the market conditions, value of the company and demand among investors.
    Marketing Company’s representatives meet investors, explain the company’s strengths and plans to increase investor interest.
    Going public and listingOnce the IPO opens, the retail investors can apply for the shares. After the IPO subscription period is over, the shares are allotted to the general public and the company gets listed on the stock exchange (like NSE or BSE) and are then traded.

    Read Also: What Is An IPO Mutual Fund? Should You Invest?

    Conclusion 

    Going public is a big decision for a company, which has many benefits and challenges. IPO helps companies raise funds and also increases its brand recognition, but with this the regulatory requirements and responsibilities towards stakeholders also increases. Therefore, it is important that the company takes this step thoughtfully.

    Going public is not just a way to raise money, but is part of the long journey of the company. With the right timing and planning, it helps in moving the company forward. Therefore, the decision of IPO should always be taken wisely and strategically.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
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    2How to Cancel an IPO Application?
    3Why Invest in anKey Difference Between IPO and FPOIPO and its Benefits?
    4What is Face What is the IPO Cycle – Meaning, Processes and Different StagesValue in an IPO?
    5What is NII in IPO?

    FAQs 

    1. Why does a company go public?

      A company goes public so that it can get capital for executing its future business plans.

    2. What is an IPO?

      IPO means Initial Public Offering and it marks the event when the company sells its shares to the public for the first time.

    3. How does an IPO help a company?

      The company raises money in exchange for equity from launching an IPO, so that it can expand its business, reduce debts, and other purposes.

    4. Are there any risks in going public?

      Yes, after going public the company has to follow strict rules related to reporting and may face pressure from market expectations.

    5. How does going public affect control over the company?

      After going public, the founders and management lose some control over the company’s decisions as they also have to listen to other shareholders.

  • What is Cut-off Price in IPO – Meaning and Example

    What is Cut-off Price in IPO – Meaning and Example

    IPO provides you with an opportunity to invest in companies which are going public for the first time. Nowadays, IPO applications can be made online using UPI. But while applying for an IPO, you need to enter a bid price within the price range offered by the company. Now the question arises: at which price one should place their bid?

    In this blog post, we will explain to you what a cut-off price is and how selecting the correct cut-off price can increase your chances of getting an IPO allotment.

    What is the Cut-Off Price in an IPO?

    A cut-off price is the final price at which the shares are allotted to the investor during the IPO. During the subscription period of the IPO, the company announces a price band at which investors can place bids. The lead managers play an important role in deciding the cut-off price of an IPO, which is determined based on the weighted average figure of all the bids received during the IPO subscription and it is the final issue price for the IPO. 

    Investors who bid at or above the cut-off price are considered eligible for allotment of shares. Whereas investors who bid below the cut-off price are deemed ineligible for IPO shares, i.e. their IPO applications are rejected and their money is refunded.

    Example of Cut-off Price

    Let’s understand the cut-off price with a real-time example of the LIC (Life Insurance Corporation of India) IPO, which was one of the largest IPO in India.

    • IPO Subscription date was from 4th May 2022 to 9th May 2022.
    • Price Band: ₹902 – ₹949 per share
    • Total Issue Size: 21,008.48 crores.

    The cut-off price is the final issue price of the IPO at which the shares are allotted to the investors. Remember, those who are applying below the cut-off price will not be allotted any shares.

    • On the Listing Date, the shares of LIC were listed at ₹872 on NSE, which was a discount to the price band’s lower price, which means investors made a loss on the listing date.

    Read Also: How to Apply for an IPO Under the HNI Category?

    How to Apply at the Cut-off Price?

    You can easily apply for an IPO at the cut-off price be following the steps below:

    1. Log in to your trading account and find the IPO section.
    2. Select the IPO you want and choose the cut-off price option when entering your bid price.
    3. Enter the number of lots you wish to apply for (each lot has a fixed number of shares).
    4. Funds equal to the maximum price in the price band multiplied with the number of shares applied for will be blocked in your bank account via ASBA.
    5. After the IPO closes, you pay the final cut-off price per share if the shares get allotted to you. However, if the shares are not allotted then the blocked amount will be refunded automatically.

    Applying at the cut-off price simplifies the process and improves your chances of allotment.

    Read Also: Apply in IPO Through ASBA- IPO Application Method

    Factors Impacting Cut-off Price

    The factors which affect the cut-off price are as follows:

    1. Demand: IPO demand plays an important role in determining the cut-off price. If the demand is on the higher side, the cut-off price will be at the upper price band.
    2. Market Sentiments: If the market sentiments are negative, the investors are more likely to place a bid below the upper price band, which can reduce the cut-off price.
    3. Comparison: To evaluate the IPO valuation, investors compare the company’s valuation with its listed peers and decide the bidding price accordingly.

    Benefits of Bidding at the Cut-off Price

    Benefits of Cut-off Price Bidding

    The significant benefits of investing at the cut-off price are as follows:

    1. Higher Chances of Allotment: Bidding at the cut-off price increases your chances of allotment, as you are agreeing to purchase the shares at the final price decided after considering all the bids received for the IPO.
    2. Simplicity: The investors who want to give themselves the best chance to receive an allotment can opt to apply at the cut-off price.
    3. Fair Pricing: The investors who bid at a cut-off price or above it ensure the fairness and transparency in the bidding and allotment process.
    4. Reflects Market Demand: The cut-off price calculated considering all the received IPO bids is based on market demand-driven approach. Hence, it provides a balance between company valuation and the interest of investors.

    Limitations of Bidding at Cut-off Price

    There are a few limitations which investors should be aware of:

    1. High Price: If you have applied at the cut-off price, then you will be agreeing to pay whatever the final issue price is within the price band. In that case, you might have to pay more than what you have intended.

    2. Does not Guarantee Allotment: Bidding at the cut-off price increases your chance of allotment; however, it does not provide any guarantee for the same. If the IPO is oversubscribed, the allotment will be done through a lottery system.

    3. Loss on Listing: If the shares are listed below cut-off price, it can cause immediate loss to the investor.

    Should I select the cut-off price for the IPO?

    As a retail investor, you must apply at the cut-off price to increase your chances of allotment, as applying at a cut-off price, you are agreeing to pay the final allotment price within the price band determined considering all the bids. 

    If in case you applied at a price below the cut-off price then your IPO application will be rejected and you will not get any allotment. 

    However, if you are an experienced investor and are able to evaluate the financial performance of a company and determine the actual price at which the shares can be allotted, then you can place your bid accordingly.

    Read Also: What is the Book-Building Process in an IPO?

    Conclusion

    On a concluding note, the cut-off price plays an important role in IPO applications. Cut-off price helps an investor maximize his or her chances of getting an allotment. Cut-off price is important for retail applicants, who may not be able to accurately determine a company’s valuation. However, it is advisable to consult your financial advisor before bidding for any IPO.

    To bid for an IPO, you need to open a Demat and trading account, which can be opened online free of cost through the Pocketful website. Pocketful also provides an advanced trading platform equipped with advanced trading tools.

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    1Anchor Investors in IPOs – Meaning, Role & Benefits
    2How to Cancel an IPO Application?
    3Why Invest in an IPO and its Benefits?
    4What is Face Value in an IPO?
    5What is NII in IPO?

    Frequently Asked Questions (FAQS)

    1. What is the meaning of price band in an IPO?

      A price band is a price range within which an investor can bid for an IPO.

    2. Does bidding at the cut-off price guarantee to get an allotment?

      No, bidding at a cut-off price only increases your chance of getting an allotment. However, if the IPO is oversubscribed, the allotment will be based on a lottery basis.

    3. How is the cut-off price decided?

      The cut-off price is determined by the lead managers and is based on the weighted average of all the bids received during the IPO subscription period.

    4. Is it mandatory to bid at a cut-off price?

      No, it is not mandatory to bid at a cut-off price, as you can place your bid at any price between the price band.

    5. What is the maximum amount for which an investor can apply for an IPO under the retail category?

      As per SEBI, an investor can apply for IPO under the retail investor category for a maximum of ₹2,00,000 worth of shares.

  • What is IPO Listing Time?

    What is IPO Listing Time?

    IPO is one of the most important events for a company as it marks the first time the company’s shares are offered to the general public. The company is said to have gone public after the IPO as retail investors also get a chance to own shares in the company and become a part of its future growth story. There are certain timelines defined by the SEBI regarding the listing of IPO.

    In this blog, we will explain the IPO listing timeline and its process to you.

    What is an IPO?

    An IPO, or Initial Public Offering, is a process through which a company raises money from the public by offering them shares. After the IPO, the company becomes a publicly listed company, and its shares are traded on the stock exchange. The company can raise money from the public to pay off its debt, for expansion, etc.

    But what happens on the first day the company’s shares are about to get traded on the stock exchange? Let’s look at the whole process that takes place on the listing day in detail.

    IPO Listing Timeline on the Listing Day

    The time of the IPO listing is as follows:

    Phase of TradingParticularsTiming
    Pre-MarketDuring the pre-market session, the limit orders are placed by the investor. During pre-market order timing, the Indicative Equilibrium Price (IEP) changes based on the orders placed by the investors.9:00 AM to 9:45 AM
    Order Matching and ExecutionBased on the final Indicative Equilibrium Price, the exchange will calculate the opening price of the Stock.9:45 AM to 9:55 AM
    Buffer SessionDuring the buffer session,the exchange ensures that the market can smoothly transit from order matching and execution session to regular trading session.9:55 AM to 10:00 AM
    Normal TradingThis is also known as the “Bell Ringing” session, after which the regular trading session begins, and investors can now start trading.At 10 AM

    Read Also: What is the IPO Allotment Process?

    IPO Listing Process in India

    The listing of an IPO in India involves various steps, details of which are as follows:

    1. Appointment of Merchant Banker: Once the company decides that it wants to list itself on the stock exchange, it appoints an investment banker, who completes all the regulatory formalities related to listing, ranging from compliance to preparing the DRHP.
    2. Filing of DRHP: During this step, the company files a DRHP or Draft Red Herring Prospectus with the Securities and Exchange Board of India (SEBI) and waits for its approval.
    3. Selection of Stock Exchange: In this step, the company decides the exchange on which it wants to get its shares listed.
    4. Pricing: In this, the lead managers determine the offer price based on the market demand. 
    5. Marketing: Once the price is decided, a marketing campaign is launched to promote the IPO.
    6. Issuing the Prospectus: The final prospectus, known as the Red Herring Prospectus or RHP is issued, which includes the offer price range.
    7. Opening for Subscription: The IPO opens for different categories of investors for a defined period of three days.
    8. Allotment: Once the IPO subscription period is closed, the shares are allotted to the successful bidders based on a lottery system. 
    9. Refund: Those who do not get any shares during the IPO allotment, the amount refunded to them within 7-10 working days.
    10. Listing: After the completion of the allotment process, the company’s shares are listed on the respective stock exchanges. Once listed, they are available for trading. 

    How is the IPO Listing Price Determined?

    How is the IPO Listing Price Determined

    There are several factors based on which the pricing of an IPO is determined; a few of such key factors are mentioned below:

    1. Demand: If an IPO has high demand during the subscription phase, it might lead to a high premium on listing.
    2. Market Sentiments: Current market trends play an important role in determining the listing price of an IPO. If the market is in a bullish trend, it can lead to high listing prices due to bullish investor sentiment.
    3. Subscription Level: During the IPO subscription process, if the subscription figures are on the lower side, it might lead to lower listing premiums or even list at a discount. On the other hand if the IPO is oversubscribed, then it indicates positive investor sentiment towards the IPO and the shares may list at a premium. 
    4. Grey Market Premium (GMP): The GMP in the unofficial metric that tells us about the expected premium at which the share may list. Grey market gives us a good idea about the listing price of the IPO shares. If GMP is higher, the IPO is expected to list at a premium and vice-versa. 

    Read Also: What is Grey Market, and How Are IPO Shares Traded?

    IPO Issue Price vs IPO Listing Price

    The definitions of IPO issue price and IPO listing price is listed below:

    IPO Issue Price: It is a price at which the company offers shares to the general public. This price can be determined through fixed-price or book-building methods.

    IPO Listing Price: It is the price at which the company’s shares get listed on a stock exchange. In simple terms, we can say that at this price, the shares started trading for the first time on the exchange.

    Conclusion

    On a concluding note, an IPO priced fairly offers an investor a great opportunity to earn listing gains, but one should have information about the IPO process. Generally, traders invest in IPO only to get the listing gains. However, if you are a seasoned investor or trader, you must stay updated on the IPO schedule as investing in an IPO carries certain risks, Therefore, it is advised to consult your investment advisor before making any investment decision.

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    3Why Invest in an IPO and its Benefits?
    4IPO Application Eligibility Criteria:
    5What is the IPO Cycle – Meaning, Processes and Different Stages

    Frequently Asked Questions (FAQs)

    1. At what time does trading in an IPO start?

      The trading in the IPO begins at 10:00 AM on the scheduled listing date after all the regulatory formalities are completed.

    2. Can I sell my stock on the listing day?

      Yes, you can easily sell stocks allotted to you on the scheduled listing day like any other ordinary stock.

    3. What is the impact of pre-open sessions on IPO listings?

      The pre-open session starts from 9:00 AM, and the trading starts in the IPO from 10 AM. During this period, the demand and supply might influence the listing price of the IPO.

    4. What is the duration of an IPO’s subscription period?

      Generally, IPOs are open for subscription for 3 working days.

    5. Can an IPO list below the issue price?

      Yes, an IPO can list the issue price below, as the listing price depends on various parameters such as market sentiments, demand for the IPO, etc.

  • OFS vs IPO: Key Differences and Benefits

    OFS vs IPO: Key Differences and Benefits

    In today’s time, if you want to invest in the stock market, then you need to understand how companies bring their shares to the public. There are two main ways of doing this: IPO (Initial Public Offering) and OFS (Offer for Sale). An IPO is when a company sells its shares to the public for the first time, through which the company raises new capital. On the other hand, in OFS, the promoters or big investors of an already listed company sell their share of shares; in this, the company does not get any new funds. That is, the company gets money from the IPO, whereas only the shareholders get money from OFS. As an investor, it is important to know what the difference is between OFS and IPO.

    What is an IPO?

    IPO, or initial public offering, is a process in which a private company brings its shares to the market for sale to the general public for the first time. Its main purpose is to raise capital for the company so that it can expand its business, repay debt, or invest in new projects.

    Process of IPO

    1. Submitting Draft Red Herring Prospectus (DRHP): First, the company files a DRHP with SEBI (Securities and Exchange Board of India), which contains complete information about the company, financial position, future plans, and risk factors. This document gives investors complete information about the company.
    2. Determination of price band : After this, the company and its underwriters together decide on a price band. This is the price range at which investors can buy shares.
    3. Book-building process : After this, the company receives bids (applications) from investors. Investors can bid for shares at any price within the fixed price band. The book-building process helps the company determine what the value of the share should be.
    4. Allotment of shares : After receiving the bids, the company allocates shares. In this process, it is seen who should get how many shares.
    5. Listing on Stock Exchange : Finally, the company’s shares get listed on the stock exchange (like NSE or BSE), and then common people and investors can buy and sell the shares in the open market.

    An IPO is a good opportunity for investors to be an early part of a company’s growth. If the right company is chosen, there is a possibility of getting good returns from the IPO.

    Read Also: What are the Different Types of IPO in India?

    What is an OFS?

    The full form of OFS is Offer for Sale, and it is a process in which existing promoters or large shareholders sell their share of shares to the public. In this process, the company does not raise new capital, but the already issued shares are sold. The main purpose of OFS is to give the promoters an opportunity to reduce their stake or exit.

    Process of OFS 

    1. Determination of floor price : First, the promoters of the company decide the floor price, i.e., the minimum price at which the shares will be sold. This price is usually kept slightly lower than the current market price so as to attract investors.
    2. Starting the bidding process : Once the floor price is decided, the bidding process begins on the stock exchange. Investors participate in this process and place their bids within the stipulated time frame.
    3. Allotment of shares : After the bidding, shares are allotted to those investors who placed the highest bids. If the number of bids is high, the allotment is done on a pro rata basis.
    4. No fresh capital is raised : Since the company does not issue new shares in OFS, it is not considered a means of raising funds. It is just an exit route for shareholders.
    5. Listing in the market : Finally, the shares sold from OFS get listed on the stock exchange, and investors can buy or sell them in the open market.

    The main purpose of OFS is to provide an exit route for promoters, while for investors it is a safe way to buy shares of listed companies.

    AspectIPO (Initial Public Offering)OFS (Offer for Sale)
    PurposeThe company issues new shares to raise capital.Promoters or large shareholders sell their stake.
    Type of SharesNew shares are issued.Existing shares are sold.
    Process ComplexityMore complex involves strict SEBI scrutiny and approval.Simpler process conducted via stock exchange bidding.
    Time FrameLengthy process may take several weeks or months.Quick process can be completed in 1–2 days.
    Pricing MechanismPrice band is set (book-building process).A floor price is set, and bids are invited.
    Investor AccessOpen to all investors both institutional and retail.Mostly accessible to institutional investors some portion for retail.
    Dilution ImpactIncreases total number of shares, leading to dilution of existing shareholding.No new shares issued; only ownership changes hands.
    Regulatory RequirementsRequires detailed SEBI approval and documentation.Fewer regulatory steps; managed primarily through stock exchange platforms.

    It is clear from this comparison that the purpose of both OFS vs IPO is different, and both the risks and opportunities for applicants are also different. IPO gives new exposure to the company, while in OFS the promoters keep their stake in the stock.

    Read Also: What is the Difference Between IPO and Share?

    IPO and OFS: Benefits and Limitations 

    Both IPO (Initial Public Offering) and OFS (Offer for Sale) are important modes of investment in the stock market. While these can be good investment options, it is important to understand the benefits and limitations associated with them so that investors can make informed and strategic decisions.

    Benefits of IPO : 

    • Investors get an opportunity to be a part of the company’s initial growth journey.
    • If the company’s performance remains strong, the share price is likely to increase significantly.
    • There is a possibility of better returns for long-term investments.

    Limitations of IPO : 

    • There is limited information about new companies, which increases the risk.
    • There is a possibility of the share price falling immediately after listing.
    • Despite applying for an IPO, getting allotment of shares is not certain.

    Benefits of OFS : 

    • Opportunity to invest in already listed and credible companies.
    • The process is fast, transparent and simple, which is convenient for investors.
    • Risk is comparatively limited as the company is already active in the market.

    Limitations of OFS : 

    • This process is often more favorable for large institutional investors; participation of retail investors may be limited.
    • The company does not receive any new capital, which does not directly impact the company’s expansion plans.

    How to invest in IPO and OFS through Pocketful?

    Investing in IPO and OFS through Pocketful
    1. Login to your Pocketful dashboard and go to the “Current IPOs/OFS” section.
    2. Select the IPO or OFS you wish to apply for.
    3. Fill in the required details like number of lots, price, and your UPI ID.
    4. Read and tick the terms and conditions and click on the Submit button.
    5. After submitting, a mandate request will appear on your UPI app.
    6. Open your UPI app, approve the mandate and complete the process by entering the UPI PIN.

    Your application will now be successfully submitted. Investing with Pocketful is easy and reliable!

    Read Also: Key Difference Between IPO and FPO

    Conclusion

    IPO and OFS are both important ways of investment, but their purpose and process are different. In IPO, the company raises new capital, while in OFS, the promoters sell their stake. If you want to invest in new growth companies, then an IPO is better. On the other hand, if you want to invest in stable and listed companies with low risk, then OFS is the right option. Before investing, take a decision keeping in mind the company’s condition and your financial goals, so that your investments can be safe and profitable.

    Frequently Asked Questions (FAQs)

    1. What is the full form of IPO and OFS?

      IPO means Initial Public Offering, and OFS means Offer for Sale.

    2. Is new capital raised in OFS?

      No, in OFS the company does not raise fresh capital; the promoters sell their existing shares.

    3. Can retail investors apply in OFS?

      Yes, as per SEBI regulations at least 10% of the OFS is reserved for retail investors.

    4. Which is safer – IPO or OFS?

      OFS is considered comparatively safe as the company is already listed.

    5. Is IPO allotment guaranteed?

      No, in case of oversubscription of IPO, allotment is done on lucky draw or pro rata basis.

    6. Do I need a demat account for IPO or OFS?

      Yes, to invest in both you need to have an active demat account.

  • How to Apply for an IPO Under the HNI Category?

    How to Apply for an IPO Under the HNI Category?

    Investing in an Initial Public Offering (IPO) under the High Net Worth Individual (HNI) category is a promising opportunity for those who are looking to allocate substantial capital into new stock issues. The HNI category in IPO is reserved for individuals who must invest more than INR 2 lakhs, allowing them access to a different allocation bracket as compared to retail investors. Applying as an HNI has specific procedures, requirements, and benefits. 

    This blog will walk you through the steps of applying for an IPO under the HNI category, including the eligibility, application processes, and benefits. 

    Who is an HNI?

    To qualify as an HNI in an IPO, an individual must apply for a minimum amount exceeding INR 2 lakhs. This substantial investment requirement distinguishes the HNIs from retail investors, who are capped at INR 2 lakhs. Investors apply through a bank or broker using the ASBA (Application Supported by Blocked Amount) facility and allowing the fund block rather than direct debit from the account for the application.

    Eligibility Criteria for HNI Category

    The High Net worth Individual (HNI) category in an Initial Public Offering (IPO) represents the investors with significant capital who can bid for shares worth over INR 2 lakhs. HNIs in IPOs fall under the Non-Institutional Investors (NII) segment, which is separate from retail investors. Bidding as an HNI has specific eligibility requirements and notable advantages.

    Steps for Applying as an HNI in IPO

    High Net worth Individuals (HNIs) apply for IPO shares under the HNI category, a specific segment of the Non-Institutional Investor (NII) pool which is separate from retail investors. Here’s a step by step guide to applying as an HNI in an IPO:

    Step 1: Understand HNI Eligibility

    HNIs in IPOs are investors who bid for shares worth over INR 2 lakhs. Knowing what HNI in IPO means is crucial, as this category has a different quota and often a higher chance of IPO allotment.

    Step 2: Arrange Funds for Investment

    Since the HNI category requires substantial capital, ensure that you have funds exceeding INR 2 lakhs. Some investors prefer margin funding for IPOs to maximize their returns, but it is essential to understand the associated risks.

    Step 3: Apply Through ASBA

    Investors applying for an IPO in the HNI category use the ASBA (Application Supported by Blocked Amount) facility, which is available through banks. ASBA blocks the bid amount in your bank account but does not debit it. The amount is debited only if the shares are allotted, making the process secure and efficient.

    Step 4: Submit Bid and Monitor Allotment

    Once the application is submitted, then track the allotment status. The benefits of HNI in an IPO can be substantial, particularly with IPOs offering high growth potential.

    Types of HNI Category

    In IPOs, the High-Net worth Individuals (HNIs) represent investors bidding above INR 2 lakhs and fall under the Non-Institutional Investor (NII) category. Within the HNI category, there are two main subcategories: S-HNIs and B-HNIs, each with distinct characteristics and approaches to IPO investments.

    1. S-HNIs

    S-HNIs are individual investors who bid for shares worth between INR 2 lakhs and INR 10 lakhs.  These investors are often high-income individuals aiming to maximize the returns through investing in IPOs of companies with good growth potential. For them, the benefits include a separate allotment pool with a higher likelihood of share allocation, which can provide lucrative returns. S-HNIs apply through ASBA (Application Supported by Blocked Amount) to ensure a secure and efficient application process.

    2. B-HNIs

    To qualify as a B-HNI, the investor must apply for shares worth more than INR 10 lakhs with no upper limit. These investors make large bids and further enhance their potential to secure a significant allocation. B-HNIs often use leverage and benefit from greater allotment chances.

    The main difference between the S-HNI and B-HNI is the bid amount. Investors fall in the S-HNI category if the bid amount is between INR 2 lakhs and INR 10 lakhs, whereas investors are categorized as B-HNI if they apply for shares worth more than INR 10 lakhs.

    Benefits of Applying IPO in the HNI Category

    Applying for an IPO in the High Net worth Individual (HNI) category offers unique advantages listed below:

    1. Higher Allocation Chance

    One of the primary benefits of HNI in IPO is the separate allotment pool, which often has fewer applicants compared to the retail category. This can lead to a higher likelihood of securing shares, especially for in-demand IPOs. With significant capital on the line, the HNIs are well-positioned to gain larger allocations, which can enhance returns when the IPO performs well.

    2. Flexible Investment Size

    Unlike retail investors who are capped at INR 2 lakhs, the HNIs have no upper limit for applying for shares, allowing greater flexibility. This flexibility gives HNIs the advantage to scale their investment based on their risk appetite and market analysis, which can potentially amplify the gains.

    3. Margin Funding Option

    HNIs often have access to margin funding, enabling them to leverage their investments without committing the full amount upfront. However, margin funding incurs interest costs and increases risk, which investors should carefully consider. This facility allows them to earn superior returns.

    4. Potential for High Returns

    HNIs investing in high-growth IPOs can see substantial returns if the company performs well post listing. The exclusive allocation pool and larger capital make the HNI category attractive for those seeking to optimize their portfolio with highly profitable opportunities.

    Conclusion

    Applying for IPOs in the HNI category provides strategic advantages such as higher chances of allocation, flexible investment amounts, access to margin funding, and the potential for substantial returns. With a separate allotment pool, the HNIs can secure larger share quantities, which can be especially rewarding in high-growth IPOs. 

    Access to margin funding also allows the HNIs to optimize their investment funds and maximize the potential gains. Applying for IPOs under the HNI category is a compelling choice for investors with significant capital looking for profitable investment opportunities. 

    Frequently Asked Questions (FAQs)

    1. What does HNI in IPO mean?

      HNI, or High Net worth Individual in IPO, refers to investors who bid for shares worth more than INR 2 lakhs in an IPO. Unlike retail investors, the HNIs are part of the Non-Institutional Investor (NII) segment, enjoying a separate allotment pool with the potentially higher chances of allocation.

    2. How do I apply for an IPO under the HNI category?

      To apply as an HNI, use the ASBA (Application Supported by Blocked Amount) facility available through your bank. Specify the bid amount and ensure it exceeds Rs 2 lakhs. Submit the application within the IPO window. Funds are blocked in your account until the allotment is finalized.

    3. Can I use margin funding to apply for HNI in the IPO?

      Yes, many brokers offer margin funding for HNIs and allow you to apply without paying the full amount upfront. Margin funding increases your investment capacity, but it also involves interest charges and increased risk, so consider it carefully.

    4. What are the benefits of applying as an HNI in IPOs?

      Applying as an HNI provides higher allocation chances, flexibility in investment size, access to margin funding, and the potential for large returns if the IPO performs well, making it an attractive option for HNI investors.

    5. How is the allotment process different for HNIs?

      The HNI category has a dedicated allotment pool with fewer applicants than the retail pool, increasing the likelihood of allocation. Shares are allotted on a proportionate basis in the NII category based on the demand and bid size. 

  • What are the Different Types of IPO in India?

    What are the Different Types of IPO in India?

    Initial Public Offering (IPO) is a way for companies in India to raise capital by offering shares to the public for the first time. IPOs not only help businesses secure funding but also allow investors to participate in a company’s growth journey. From traditional fixed price offerings to the more recent book-building issues, understanding the types of IPOs is essential. 

    In this blog, we will explore the various IPO types available in India, highlighting their features, benefits, and key differences. 

    What is an IPO?

    An Initial Public Offering (IPO) is the process by which a private company offers shares to the public for the first time and allows the investors to buy ownership stakes. IPO enables companies to raise capital for expansion, pay off debt, or fund new projects. To invest in an IPO, individuals need a Demat account, where shares can be electronically stored and managed. Let’s look at the types of IPO.

    Types of IPO

    When companies decide to go public and offer shares for the first time, they choose between the different pricing mechanisms for IPO that best suit their financial and strategic goals. The IPO types in India are: 

    Based on the Pricing Mechanism

    The two types of IPOs based on pricing mechanisms are:

    1. Fixed Price Issue: In a Fixed Price issue, the company offers shares at a set price, and investors know how much they will pay per share in advance. The demand for the issue cannot be determined until the issue closes.
    2. Book Building Issue: IPO allows investors to bid within a price range, with the final price determined based on demand. Investors can track the demand for the issue till the issue closes.

    Based on Shares Offered

    The two types of IPOs based on shares offered are:

    1. Offer for Sale: An IPO is categorized as an Offer for Sale (OFS) when existing shareholders sell their shares.
    2. Fresh Issue IPO: An IPO is categorized as a fresh issue when new shares are issued to raise capital. 

    Knowing the types of IPOs helps investors choose IPOs that match their financial goals and risk tolerance. Investing in an IPO can be a lucrative opportunity if approached with a solid understanding of its mechanisms and requirements. 

    What is the difference between a Fixed Price issue and a Book-Building issue?

    The key difference between a Fixed Price Issue and a Book Building Issue are:

    CriteriaBook Building IssueFixed Price Issue
    Pricing MechanismThe company provides a price band within which investors can bid for shares.The company sets a price for its shares, which investors must pay.
    DemandIt can be determined on each day the IPO is open for subscription.The demand cannot be determined until the IPO closes for subscription.
    PaymentAmount is blocked in the bank account and is deducted if the shares are allotted.Investors must pay the entire amount at the time of subscription and are refunded if the shares are not allotted.
    Reservations50% is reserved for QIBs, 35% for small investors and 15% for other investors.50% for those with applications below INR 2 lakh and 50% for HNIs.
    ProceedsThe price discovery mechanism results in an optimal price for securities, which usually maximizes the IPO proceeds.As the price is predetermined, the fixed price approach generally generates lower proceeds than book-building issues.

    Conclusion

    IPO can be categorized as a Fixed Price issue or a Book-Building issue based on the pricing mechanism. Moreover, IPOs can be termed as an Offer For Sale (OFS) if the existing shareholders are selling their shares or a Fresh Issue if new shares are issued to raise capital. The primary difference between a Fixed Price Issue and a Book Building Issue lies in how the share price is set. A Fixed Price Issue provides a predetermined price, offering simplicity and certainty for investors, while a Book Building Issue allows the market-driven price discovery and reflects the investor demand. 

    each method has its advantages, with fixed price offerings being less complex and book building allowing for potential price adjustments based on investor interest. Understanding these distinctions helps investors make informed decisions on which type of IPO suits their investment strategy and risk tolerance. 

    Frequently Asked Questions (FAQs)

    1. What are the different types of IPOs in India?

      In India, the main types of IPOs are Fixed-Price IPOs and Book-Building IPOs. Other variations include Offer for Sale (OFS) and the Fresh Issue IPOs.

    2. What is the difference between a Fixed Price IPO and a Book Building IPO?

      A Fixed Price IPO offers shares at a fixed price, while in a Book Building IPO, the investors place bids within a price range and the final price is set based on demand. The book-building approach is more flexible as it reflects the investor interest. 

    3. How can I participate in an IPO in India?

      To participate in an IPO in India, you must have a Demat account. You can apply through online platforms and submit your application during the IPO period.

    4. What is the meaning of OFS and Fresh Issue?

      IPO is termed Offer for Sale (OFS) issue when the existing shareholders sell their stake. In a Fresh Issue IPO, new shares are issued to raise capital for the company.

    5. How do I choose the best IPO to invest in?

      To choose the best IPO, research the company’s financials, industry outlook and the IPO type. Also, consult a financial advisor before making an investment decision. 

  • What is Grey Market, and How Are IPO Shares Traded?

    What is Grey Market, and How Are IPO Shares Traded?

    The grey market is a marketplace where the shares are traded before their official listing on the recognized stock exchanges. It operates outside formal channels, and it allows investors to buy and sell IPO shares before their public debut. 

    In the grey market, the two primary types of transactions occur: buying and selling shares allotted to an investor and transfer of IPO applications. Grey Market Premium (GMP) represents the premium at which IPO shares are traded. GMP can be positive or negative, indicating the shares are trading either above or below their issue price, respectively. GMP acts as an indicator of demand for IPO shares and investor sentiment.

    Application trading involves buying and selling IPO applications. However, this practice carries inherent risks due to its informal nature. In this blog, we will discuss the grey market, GMP, and how it works. Moreover, we will provide information about the types of trading in the grey market and the calculation of GMP.

    What is Grey Market?

    The grey market is an informal trading market where shares related to upcoming IPOs are bought and sold before their official listing on regulated stock exchanges. This market operates outside standard trading frameworks and it is not regulated by authorities, which means transactions in the grey market are not subject to the same legal oversight as legal exchanges.

    Grey market trading is popular among investors who seek early exposure to stocks, particularly in cases where the demand for an IPO is high and there is the anticipation of a price rise post-listing. In the grey market, transactions primarily are of two types: trading of allotted shares and IPO application trading.

    Though lucrative, grey market trading carries risks as it operates in an unregulated environment where price volatility can be high. For investors, understanding grey market helps gauge pre-IPO demand but requires careful consideration due to the lack of regulations. 

    What is the Grey Market Premium?

    The grey market premium (GMP) is an unofficial difference between the grey market price of the company’s shares and the IPO price. In the context of the grey market, GMP reflects the demand and sentiment around an IPO, as the investors speculate on the stock’s listing day performance. While the grey market operates outside the regulated stock exchanges, it gives an indication of how a stock might perform when it officially debuts.

    For example, if a stock’s IPO issue price is set at INR 100 and the grey market price is INR 120, then the grey market premium is INR 20, indicating that investors expect the stock to open around INR 120 on the listing day. This premium fluctuates based on various factors like market sentiment, demand for the IPO, and broader market conditions. A high GMP often indicates strong demand, while a lower or negative GMP could signal lower enthusiasm among investors.

    The grey market is particularly popular in IPO markets as it provides a way for investors to gauge the potential success of an offering before its formal listing. However, since the grey market is unregulated, there are no legal protections, and the trades are speculative in nature, making it highly risky for investors.

    How to Calculate Grey Market Premium?

    To calculate the grey market premium (GMP), you can compare the price at which IPO shares are trading in the unofficial grey market to their official issue price. The GMP indicates an IPO share’s expected listing gain or loss when it goes public.

    Here’s how to calculate it:

    • Determine the Issue Price: It is the official price of the share set by the company. 
    • Identify the Grey Market Price: Check the current grey market price from reliable sources or dealers. 

    GMP = Grey Market Price − Issue Price

    A higher GMP generally signals positive market sentiment, but remember, since the grey market is unregulated and GMP can fluctuate significantly based on speculation. 

    Grey Market Premium example

    Suppose, an IPO is announced with an issue price of INR 100 per share. In the grey market, the shares begin trading unofficially, and investor interest is high. As a result, the grey market price rises to INR 130 per share. Here’s how the GMP is calculated:

    Grey Market Price = INR 130

    IPO Issue Price = INR 100

    GMP = Grey Market Price − Issue Price

    = INR 130 − INR 100

    = INR 30

    In this example, the GMP is INR 30, which indicates that investors expect the stock to list at approximately INR 130 on the official stock exchange. This INR 30 premium reflects a 30% anticipated gain and signaling strong demand. 

    Alternatively,

    Grey Market Price = INR 90

    IPO Issue Price = INR 100

    GMP = Grey Market Price − Issue Price

    = INR 90 − INR 100

    = – INR 10 

    Here, the GMP is negative, which suggests low demand and potential listing of shares at a discount.

    How Does the Grey Market Work?

    The grey market operates as an informal marketplace where the shares of upcoming IPOs are bought and sold before their official listing on stock exchanges. This market functions outside of regulatory oversight, meaning the transactions occur privately between individuals and the dealers without formal records. It offers investors a glimpse into the anticipated demand for IPO shares and allows them to gauge interest and speculate on the potential opening price. 

    One of the main activities in the grey market is the trading of IPO shares before they are officially listed on the exchange. These transactions are based on grey market premiums (GMP), which reflects the price difference between the IPO issue price and what investors are willing to pay before the stock’s listing. Additionally, some investors engage in IPO application trading. 

    While the grey market offers insights into investor sentiment, it is unregulated and poses high risks for participants. Since transactions are not governed by legal frameworks, prices can be volatile and unpredictable. Investors should approach trading in the grey market with caution due to its informal nature. 

    Types of Trading in Grey Market

    In the grey market, there are two primary types of trading: IPO shares trading and IPO application trading. These unofficial trading practices allow the investors to buy and sell IPO shares or applications before the stock is officially listed.

    1. IPO Shares Trading

    In this type of trading, the seller has been allotted shares of the IPO but doesn’t wish to wait till the listing day and wants to sell the shares. On the other hand, the buyer either doesn’t get allotment or wishes to increase position size and contacts the grey market dealer to arrange IPO shares. The dealer facilitates a deal between the buyer and seller, and a transaction price is set. 

    When the share gets listed, the shares are credited to the seller’s demat account, who can then either transfer the shares to the buyer’s demat account and accept the transaction price or sell the shares and settle the transaction with the buyer in cash.

    For example: If an IPO share’s issue price is INR 100 and the GMP is INR 20, it signals that the market expects the stock to list around INR 120. Suppose Trader A wants to buy shares before listing and contacts a grey market dealer. Dealer tracks down Trader B, who has the shares and wishes to sell them before the listing date at a GMP of INR 30, i.e., a premium of INR 10 above the current GMP. The transaction price was set at INR 130. On the listing day, the share was trading at INR 140. Now, Trader B can transfer the securities to the demat account of Trader A and accept INR 130 in return. Alternatively, Trader B can sell the shares at INR 140 and pay INR 10 to Trader A.

    2. Application Trading

    In IPO application trading, the seller of the application has not yet received an allotment of IPO shares but wishes to exit the position based on the current GMP. The buyer believes the GMP will increase, and the shares will get listed at a much higher rate than the current GMP. The buyer and seller of the IPO application approach a dealer, and a deal is structured. It should be noted that in IPO application trading, no shares have been allocated yet, and only the IPO application is being traded.

    The buyer can sell the IPO application if the GMP increases or wait till the listing day. If the seller gets allotted shares, then the seller must either transfer shares to the buyer’s demat account or settle the deal in cash with the buyer. The deal doesn’t go through if the seller doesn’t get an allotment.

    For example: Suppose Trader A has applied for a maximum number of lots in an IPO and wants to increase his chances of getting an IPO allotment. Trader A gets in touch with a dealer who arranges an IPO application of Trader B. Suppose the current GMP is INR 25 and the issue price is INR 100. Trader B wishes to sell the IPO application at a GMP of INR 30, i.e., at a premium of INR 5. On the listing day, suppose the shares are trading at INR 150. If Trader B gets an allotment, then the shares must either be transferred to the Demat account of Trader A and accept INR 130 in return. Alternatively, Trader B can continue to hold onto shares and settle the deal with Trader A by paying INR 20 in cash. However, the deal doesn’t go through if Trader B doesn’t get allotment.

    The difference between the two types of trading is that in IPO shares trading, the seller is already allotted shares, and a transaction occurs between the buyer and seller. On the other hand, in IPO application trading, the seller may not get the allotment, and there will be no transaction between the buyer and seller. However, counterparty risk exists.

    Steps to Trade IPO Shares in the Grey Market

    Trading the IPO shares in the grey market involves several steps as mentioned below:

    • Identify a Trusted Dealer: The grey market operates informally, so it is essential to find a reliable dealer who facilitates grey market transactions. Dealers act as intermediaries and match the buyers and sellers for IPO shares or applications.
    • Check the Grey Market Premium (GMP): Before trading, review the grey market premium (GMP) to assess demand for the IPO shares. GMP reflects how much investors are willing to pay above or below the issue price and gives an estimate of the anticipated listing price.
    • Understand IPO Application Trading: In an oversubscribed IPO, the investors can buy the IPO application through a grey market dealer, set the transaction price in advance and hope to earn profits if the seller is allotted shares.
    • Agree on Price and Payment Terms: Since grey market transactions are unregulated, both parties should agree on the price, quantity and payment method beforehand. 
    • Proceed with Caution: Remember, grey market trading is highly risky. Without legal protections or transparency, it is essential to trade only with trusted intermediaries and carefully consider the potential risks involved. 

    Conclusion

    In conclusion, the grey market premium (GMP) offers insights into investor demand and expectations for an IPO share before it is officially listed. A positive GMP suggests strong demand, while a negative GMP indicates weaker interest. 

    Though it is a useful indicator, transactions in the grey market are highly speculative in nature and operate outside regulated markets. GMP provides a snapshot of pre-listing enthusiasm but should not be relied upon as the sole reason behind investment decisions. Due to the grey market’s unofficial nature, all the information mentioned above is for educational purposes only and should not be considered investment or trading advice. Consult a financial advisor before trading in the grey market.

    Frequently Asked Questions (FAQs)

    1. What is the grey market in stocks?

      The grey market in stocks is an unofficial market when IPO shares are traded before their official listing on the stock exchange. This market operates outside of regulatory oversight and allows the investors to buy or sell IPO shares based on anticipated demand and listing performance.

    2. What types of trading occur in the grey market?

      The main types of trading in the grey market include IPO shares trading and IPO applications trading.

    3. How does the grey market premium (GMP) work?

      The GMP reflects the difference between the IPO issue price and the price at which shares are traded in the grey market. A positive GMP indicates high demand, while a negative GMP shows low investor interest, which helps investors gauge expected listing performance.

    4. Is trading in the grey market safe?

      Grey market trading is unregulated, which means it carries higher risks. Prices are speculative and volatile with no legal protection for buyers or sellers.

    5. Why do investors trade IPO shares in the grey market?

      Investors trade shares or applications for an IPO to earn profits based on market sentiment.

  • What is IPO: Full Form, Definition, Types, and Benefits

    What is IPO: Full Form, Definition, Types, and Benefits

    An Initial Public Offering (IPO) is the process by which a private company offers its shares to the public for the first time and transition into a publicly traded entity. This significant milestone helps the company raise capital by selling a portion of ownership to individual and institutional investors on stock exchanges. IPOs are popular among investors as they have the potential to offer high returns, especially when investing in established and high-growth companies. 

    In this blog, we will give you information about the IPO process, its types, timeline, advantages and how to invest in an IPO. Understanding the IPOs, their types and their benefits can aid investors in making better investment decisions. 

    What is an IPO?

    An Initial Public Offering (IPO) is an event in which a company offers its shares to the public for the first time, which are then publicly traded on a stock exchange. This process allows companies to raise capital for growth, expansion, and innovation by offering ownership stakes to a wide range of investors. 

    Investors view IPOs as an opportunity to invest in the early stages of companies with a promising future, though they carry certain risks. IPOs are crucial for both businesses and investors in the financial market. 

    Types of IPO

    IPOs can be of two types, each serving different purposes in the financial market and attracting diverse investor interests. Understanding these types helps with strategic IPO investment. The two primary types of IPOs are:

    1. Fixed Price IPO: In a Fixed Price IPO, the company determines a fixed price, and investors agree to buy shares at this price. However, the demand is only known after the IPO closes.
    1. Book-Building IPO: In a Book-Building IPO, the company sets a price range rather than a fixed price and allows the investors to bid within that range. The final price is then determined based on demand. This method provides flexibility as prices can adjust based on demand.

    Read Also: What is the IPO Cycle – Meaning, Processes and Different Stages

    Terms Associated with IPOs

    Investors must understand several key terms associated with an IPO and understand the process better. Here’s a look at some important terms associated with IPOs:

    • IPO Price: The IPO price is the initial price set for the shares offered to the public. In a Fixed-price IPO, the price is determined beforehand, while in book-building IPOs, investors bid within a range, and the final price is set based on demand.
    • Prospectus: It is a vital document issued by the company, which provides the potential investors with the objective of issuing an IPO and the company’s financials, business model, and associated risks. It is a comprehensive guide that helps investors make better investment decisions.
    • Underwriter: Underwriters are investment banks or financial institutions that assist the company in preparing for the IPO. They help in the preparation of the documents, pricing, marketing, and handling the regulatory aspects of the IPO.
    • Lock-Up Period: After an IPO, there’s often a lock-up period during which company insiders like executives, and early investors cannot sell their shares. This period helps stabilize the stock price post-listing.
    • Oversubscription: When demand for an IPO exceeds the shares offered, it is termed an oversubscription. Oversubscribed IPOs indicate high interest from investors, potentially leading to a price surge on the listing day.
    • Online IPO Application: With the rise of digital platforms, online IPO applications allow investors to participate in IPOs easily. This accessibility has popularized IPO investment among retail investors, allowing them to participate in the initial public offering directly from trading accounts.
    • Listing Day: This is the first trading day of the newly issued shares on a stock exchange. Prices often fluctuate significantly due to high demand, especially for popular IPOs.

    Understanding these IPO-related terms enables investors to navigate the IPO process confidently, helping them make strategic investments in the share market. 

    Read Also: What is an IPO Subscription & How Does it Work?

    How does an Initial Public Offering (IPO) work?

    An Initial Public Offering (IPO) is an event when a private company offers its shares to the public for the first time to raise capital. IPO stands for Initial Public Offering and marks the company’s entry into public trading on stock exchanges. To initiate an IPO, a company must follow the following steps: 

    1. Hire an Underwriter: The first step in launching an IPO is to hire a Merchant Banker (Lead Manager) for underwriting services. These banks help determine the pricing, offer structure, etc., and ensure that the company complies with regulatory requirements. 
    1. Submit Documents: The company and the merchant banker work together to prepare a draft prospectus (DRHP), which is submitted to SEBI for review. The prospectus contains financials, risks and other important details regarding the offer and the company. 
    2. SEBI Approval and IPO Application: SEBI verifies the details mentioned in the DRHP and approves it. After regulatory approval, an IPO application is submitted to the stock exchange.
    3. Price Determination: A pricing method is determined by the issuer and merchant banker. They can select either fixed-price issues or book-building issues. In a Book Building, IPO and investors bid within a specified price range, while in a Fixed-price IPO, shares are offered at a set price.
    4. RHP Submission: An RHP is an updated version of DRHP, which contains the latest information about the company. RHP is submitted to the exchange.
    5. Marketing: Merchant bankers appoint PR & advertising agencies to make the IPO popular. The main objective of marketing campaigns is to generate interest among the general public.
    6. IPO opens to Anchor Investors: An anchor investor is a qualified institutional buyer (QIB) and submits a bid of at least INR 10 crore.
    7. IPO opens to the Public: Investors apply for IPO through their brokers or banks. 
    8. IPO shares Allotment: Shares are allotted to investors through a lottery in most cases. Exchange coordinates with banks to confirm the bank accounts and demat accounts of IPO applicants. Upon successful verification, the investment amount is deducted from the investor’s bank account and shares are credited to the investor’s demat account.
    9. Listing Date: Shares offered in an IPO are traded on this day. Before trading, a pre-open session is organized in which investors can place orders. The orders can be entered, modified or canceled from 9:00 am to 9:45 am. From 9:45 am to 9:55 am, the orders are matched, and normal trading begins at 10:00 am on the listing date. 

    Read Also: Why Invest in an IPO and its Benefits?

    What is the IPO Timeline?

    The IPO timeline is the stages a private company undergoes to go public and list its shares on a stock exchange. It typically begins with planning and due diligence, during which the company assesses its readiness, hires underwriters, and conducts financial audits. This is followed by filing the regulatory documents, such as the prospectus with the regulatory bodies and exchange, providing details of the IPO, including the risks, financial statement,s and objectives of issuing an IPO.

    Next, through IPO roadshow and marketing, the issuer and merchant bankers introduce the IPO to potential investors, which helps them analyze the demand for the IPO and set an appropriate price range. Once the price is finalized, the shares are offered to institutional and retail investors.

    Finally, on the IPO listing day, the shares are publicly traded on the stock exchange, which marks the completion of the IPO process. This entire timeline can take several months, depending on the company’s preparedness, regulatory requirements, and market conditions.

    Benefits of Investing in an IPO

    Investing in an IPO or Initial Public Offering presents a unique opportunity for investors to become part of a company’s growth journey. Some of the key benefits are:

    1. Popular IPOs generally perform well on the listing day, and investors can sell their shares to realize significant returns in a short span of time.
    1. As the company expands and grows using the capital raised through IPO, its stock gains value over time. Investors can participate in the IPO and hold onto shares for capital appreciation.
    2. IPO investments also provide portfolio diversification and offering exposure to new industries or innovative companies that can balance other investment risks. 
    3. Companies launching an IPO are required to disclose their financials and growth plans in their prospectus, which gives the investors valuable insights.

    Read Also: What is the IPO Allotment Process?

    Advantages and Disadvantages of IPOs

    The advantages and disadvantages of IPOs for companies and investors are mentioned below.

    Advantages

    For companies, IPOs provide access to substantial capital for growth, expansion or debt reduction. Public listing also enhances credibility and visibility, which improves the company’s profile in the market. For investors, IPOs provide an opportunity to invest early in a company with growth potential and often leads to high returns if the stock performs well. Liquidity improves as shares can be easily traded on public exchanges.

    Disadvantages

    However, IPOs also come with challenges. Companies going public are subject to increased regulatory scrutiny as they are required to disclose financial, operational details, which can reduce privacy. Additionally, market fluctuations may lead to volatility in stock prices, impacting both the company’s valuation and investor confidence. For investors, IPOs carry risks as some companies may struggle post-IPO and potentially resulting in losses.

    Types of Investors in IPO

    There are three main types of investors in an IPO (Initial Public Offering): Retail Investors, Qualified Institutional Buyers (QIBs), and High Net Worth Individuals (HNIs). Each plays a unique role in the IPO process.

    • Retail Investors: These are individual investors applying for smaller lots, usually through online IPO applications. They make up a significant portion of IPO participants and are often allotted a reserved quota in IPOs to encourage public participation.
    • Qualified Institutional Buyers (QIBs): QIBs include entities like mutual funds, banks, and insurance companies. They have vast resources and expertise, making them crucial in determining the demand and pricing of an IPO. QIBs usually receive a reserved portion of shares in large IPOs.
    • Non-Institutional Investors: Non-institutional investors or HNIs invest larger sums than retail investors but are not institutions. 

    How to check for upcoming IPOs?

    To check for upcoming IPOs, investors can explore various reliable sources. Stock exchange websites like the NSE and BSE in India provide updated IPO calendars and announcements. 

    Additionally, brokerage platforms often list upcoming IPOs and offering the detailed information and online IPO application options. Some financial applications and investment portals include IPO tracking tools with notifications for new listings. 

    How to Invest in an IPO?

    Investing in an IPO involves several straightforward steps. First, upcoming IPOs should be identified through stock exchange websites or financial news platforms to identify investment opportunities. Next, ensure you have a Demat account set up with a depository participant (DP) to apply for an IPO.

    Once you have identified an IPO, submit your IPO application through your DP platform. Track the allotment status as not all applicants may be allotted shares due to high demand. If the shares are allotted, monitor the stock performance post-listing. 

    Read Also: What is the IPO Allotment Process?

    Conclusion

    In conclusion, investing in an IPO can be a rewarding opportunity for both individual and institutional investors. By researching upcoming IPOs and using online platforms, investors can own shares of companies at their early stages of growth. Understanding the mechanics of the IPO process is crucial for making informed investment decisions. While the potential for high returns exists, it is important to consider the associated risks and market volatility.

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    Frequently Asked Questions (FAQs)

    1. What are the different types of IPOs?

      The main types of IPOs are Fixed Price IPOs, where shares are sold at a predetermined price and Book Building IPOs, where the investors place bids within a price range and allow the company to determine the final offer price based on demand.

    2.  How do I invest in an IPO?

      To invest in an IPO, research upcoming IPOs and submit an IPO application through the DP platforms.

    3. What are the benefits of investing in an IPO?

      Investing in an IPO offers several benefits, including early access to potentially high growth companies, the opportunity for significant capital appreciation, portfolio diversification and increased liquidity as shares are publicly traded.

    4. What risks are associated with investing in IPOs?

      While IPOs can be lucrative, they also come with risks such as market volatility, lack of historical performance data, and the possibility that the company may not perform as expected after going public. Investors should conduct thorough research and consider their risk tolerance before investing.

  • What is the Difference Between IPO and Share?

    What is the Difference Between IPO and Share?

    The terms IPO (Initial Public Offering) and shares are fundamental concepts in the world of finance and understanding the difference between the two is crucial. An IPO is the process by which a private company goes public by offering its shares for the first time to the general public. It’s a way for the company to raise capital. Shares, on the other hand, represent ownership units in a company, and they can be bought and sold on the stock market after the IPO. Understanding the difference helps investors make informed decisions about participation in public offerings or buying shares on the open market. 

    In this blog, we will explain IPO and shares, their types, and the differences between them.

    What is an IPO?

    An IPO, or Initial Public Offering, is a process through which a private company offers its shares to the public for the first time. This transition from a private to a public entity allows the company to raise capital, expand, and gain market visibility. Investors need a Demat Account to hold shares electronically, and a trading account is required to trade these shares easily. After the IPO, shares are listed on the stock exchange allowing buying and selling of shares at market driven prices. The difference between IPO and stock is that IPO is an event, while stocks are the actual assets offered in the IPO. Understanding IPO vs. stock is key for anyone interested in the financial market. 

    Read Also: IPO Application Eligibility Criteria:

    Types of IPO

    The two main types of IPOs are mentioned below:

    • Fixed Price Issues: In a Fixed Price Issue, the company sets a specific price for its shares and allows the investors to know the exact purchase price before going public. The company hires underwriters who determine the share price at which the securities will be allotted if the IPO application is successful. However, the price is set without considering the investor’s demand for shares, which can affect investment returns.
    • Book Building Issues: In contrast, a Book Building Issue involves a price range within which the investors can place bids, and the final price is set based on the demand for shares within that range. This method captures the market demand for shares and results in better price discovery.

    What is a Share?

    A share, commonly known as common stock or an ordinary share, represents a unit of ownership in a company. It entitles shareholders to a portion of its profits and voting rights. Shareholders have the right to vote on key issues such as election of board members or the approval of major company policies. They may also receive dividends, although these are not guaranteed and depend on the company’s profitability.

    However, in the event of liquidation, common shareholders are paid after bondholders and preferred shareholders. Common shares are what investors trade in the stock market, making them a popular choice for individual investors looking to participate in a company’s growth. However, ordinary shares often carry more risk and may offer higher potential for returns if the company’s profitability increases.

    Types of Shares

    The two types of shares are mentioned below:

    1. Common Shares: A common share represents an ownership unit in a company and gives shareholders voting rights and dividends. However, in the event of liquidation, common shareholders are last to receive payouts after creditors and preferred shareholders. 
    2. Preferred Shares: On the other hand, preferred shares have priority over common shares when dividends and assets are distributed during liquidation. However, these shares generally lack voting rights.

    Difference Between IPO and Share

    The main difference between an IPO (Initial Public Offering) and a share lies in their definitions and roles in the financial market. An IPO is the process through which a private company offers its shares to the public for the first time, enabling it to raise capital. It’s simply a debut event for a company’s stock on the stock market.

    On the other hand, a share represents a unit of ownership in a company. After the IPO, shares are available for trading on stock exchanges, and they are what investors buy and sell in the secondary market. In short, an IPO is the event, while shares are the tradable assets. To invest in an IPO, individuals need a Demat Account to hold shares electronically and can use a trading account to easily buy and sell shares. 

    Read Also: What is an IPO Subscription & How Does it Work?

    Conclusion

    In summary, an IPO is an event in which a company offers its shares to the public for the first time, marking its transition from private to public ownership. This process allows the company to raise capital and expand its operations, while shares represent the actual units of ownership in a company that investors buy and sell on the stock exchange. Investors need a Demat Account to hold these shares electronically and can use depository participant’s (DP) platforms to access their trading accounts for trading shares. 

    FAQs

    1. What is the main difference between an IPO and a share?

      An IPO is the process through which a private company offers its shares to the public for the first time, allowing it to raise capital and become publicly traded. A share, however, is an individual unit of ownership in a company that investors buy or sell on the stock market.

    2. Can I buy shares without participating in an IPO?

      After an IPO, the company’s shares are listed on the stock exchange, where the investors can buy and sell them freely in the secondary market regardless of whether they participated in the IPO.

    3. What are the different types of shares?

      Common shares and preferred shares are the two types of shares.

    4. What are the risks involved in buying shares through an IPO vs. buying them in the open market?

       IPO investments carry risks as the company is newly listed and may have a limited track record. Volatility and other market factors can cause the share price to be overvalued, making it risky to purchase shares in the open market.

    5. Do I need a Demat Account to buy shares through an IPO?

      A Demat account is essential for holding shares electronically, whether purchased through an IPO or the secondary market. 

  • IPO Application Eligibility Criteria:

    IPO Application Eligibility Criteria:

    Investing in an IPO allows individuals and institutions to become shareholders in a company going public. IPOs offer a chance to invest in high-growth companies from the start, thus creating opportunities for both retail and institutional investors. Participating in an IPO is not as simple as it seems; investors must meet certain eligibility criteria and requirements. Whether you are an individual making your first IPO investment or an institutional investor seeking a significant stake, knowing the eligibility criteria is important for a smooth application process.

    This blog will outline the important requirements for various investors, discuss other factors and guide you on how to successfully apply for an IPO.

    What is an IPO?

    IPO stands for Initial Public Offering. It refers to the process when a private company first sells its shares to the public on the stock exchange. This changes the company from being privately owned to publicly owned. 

    When the company launches its IPO, the money flows to the company as its share capital, and shareholders become owners of a part of the company. 

    However, before investing in an IPO, an investor should keep in mind that not all IPOs have a successful launch. Some IPOs may be unsuccessful, and the company’s stock price might fall after listing.

    Who Can Apply for an IPO?

    An initial public offering is available for investing to various investors based on criteria set by regulators and the company. Here is a list of different types of IPO applicants:

    1. Retail Investors: Retail investors must have a demat account to hold shares electronically and a trading account for executing transactions. They can invest up to ₹2 lakhs.

    2. Qualified Institutional Buyers: Qualified institutional buyers or QIBs are institutional investors with substantial capital to invest, such as large financial institutions, banks and insurance companies. 

    3. High-Net-Worth Individuals or HNIs: High net-worth individuals (HNIs) or non-institutional investors (NIIs) are individuals or entities making investments that exceed the retail investor limit. HNIs are similar to retail investors but with no investment cap.

    4. Anchor Investors: Anchor investors represent financial institutions that are allotted shares at a fixed price before the shares are offered to the public. These investors are subject to a lock-in period during which they can’t sell their shares post-IPO. They must invest a minimum of ₹10 crore in a mainboard IPO and ₹1 crore in a SME IPO. 

    5. Employee Quota: Employees of the company launching the IPO can also apply under a special category if reserved by the company. Shares may be offered at a discounted price or on preferential terms to employees.

    Read Also: What is the IPO Allotment Process?

    Eligibility Criteria for Companies

    Mainboard IPO

    • Net Tangible Assets

    The company should have net tangible assets of at least ₹3 crore, with no more than 50% in monetary assets, for the preceding three years.

    • Operating Profit

    The company should have an average operating profit of at least fifteen crore rupees, calculated on a consolidated basis in at least three years of the past five years.

    • Net Worth

    The company should have a net worth of at least one crore rupees in each of the preceding three full years (of twelve months each), calculated on a consolidated basis. 

    • Name Change

    If the company has changed its name within the last year, at least 50% of the revenue for the preceding year should have been earned from the activity indicated by its new name.

    SME IPO

    • Post-Issue Paid Up-Capital

    The company’s post-issue paid-up capital should not be more than ₹25 crores.

    • Net Worth

    The net worth of the company should be at least ₹1 crore for two preceding full financial years.

    • Net Tangible Assets

    The net tangible asset of the company must be at least ₹3 crores as per the latest audited financial results.

    • Past Track-record

    The applicant company should have a track record of at least 3 years, provided the applicant company must have been operating for at least one full financial year and must provide audited financial results for that year.

    If the applicant company lacks a three-year track record, the proposed IPO project must be evaluated and funded by NABARD, SIDBI, Banks (excluding cooperative banks), or other financial institutions.

    • Operating Profit

    The company or firm must have an operating profit of at least ₹1 crore for at least two of the last three financial years before applying.

    • Name Change

    In case of a name change in the past year, at least 50% of the revenue for the previous full financial year must come from the activity associated with the new name.

    Basic Eligibility Criteria for IPO Application/Eligibility Criteria for Retail Investors

    The basic eligibility criteria for applying for an IPO generally include the following requirements:

    • Applicants must be at least 18 years old, or if they are underage, a guardian must apply on their behalf.
    • A demat account is required to hold shares electronically.
    • A valid PAN card is required for IPO applications in India. This ensures compliance with tax regulations.
    • A functional bank account is necessary to make payments using ASBA (an application supported by blocked amounts) or similar methods. The account must have enough funds to cover the application amount.
    • Applicants must complete the KYC process with their broker or bank, which includes identity proof (Passport, PAN) and address proof (utility bills, bank statement).
    • Applicants must not be blacklisted by regulatory authorities like SEBI. There should be no legal or financial barriers to participating in the stock market.
    • Investors should apply within their respective category limits:
    1. Retail Individual Investors: Generally, up to INR 2 Lakh (or equivalent).
    2. High Net-worth Individuals (HNIs): Above the retail limit.
    • The applicant’s residency status must comply with the country’s regulations. For instance, NRIs or Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) must adhere to specific regulations in India. 

    Additional Eligibility Factors

    Beyond standard eligibility criteria for investors, other factors can also affect an individual or institution’s ability to participate in an IPO. Let us have a quick overview of some additional eligibility factors.

    1. Timely Application Submission: 

    • IPO applications are usually accepted during a specific time frame. 
    • Submitting after the deadline or during operational downtimes can result in rejection.

    2. Employee and Shareholder Eligibility:  

    If an IPO offers a special quota for employees or current shareholders, make sure to have the necessary documentation, like proof of employment or shareholding, to qualify for shares offered in these reserved categories.

    3. Correct Documentation

    • Both retail and institutional investors need to provide documents such as identity proof, address proof, etc.
    • Any kind of discrepancies in documentation could lead to rejections.

    Eligibility Criteria for Institutional Investors

    Institutional investors are entities such as mutual funds, venture capital funds, pension funds, insurance companies, commercial banks, alternate investment funds (AIFs), hedge funds, foreign institutional investors (FIIs), and qualified institutional buyers (QIBs)

    Eligibility criteria for institutional investors participating in an IPO vary by country’s regulations. However, the general guidelines are as follows:

    • The entity must be registered with SEBI. Institutional investors require approvals to invest and operate in the Indian stock market.
    • In contrast to retail investors, institutional investors face no limit on the maximum investable amount. 
    • Institutional investors must have a demat account and a trading account. Furthermore, applications supported by blocked amounts or ASBA are also necessary in India to block funds in the bank account for IPO applications.
    • In India, a quota of 50% is generally reserved for qualified institutional buyers.
    • Institutions must provide financial disclosures or evidence of capital adequacy. They need to show they can finance large investments.

    How to Check IPO Allocation Status

    1. Visit the Registrar’s website 

    Each IPO has a designated registrar responsible for processing applications and allocating shares. Common registrars include Link Intime and KFin Technologies. Open the official website of the registrar, and you will find an IPO status or allotment section.

    2. Find the Allotment Page 

    Search for the specific IPO name in either the IPO allotment or IPO status sections. Click on the IPO name to proceed.

    3. Enter the details 

    To check your allocation status, you will need to provide your PAN number, IPO application number or the demat account number.

    4. Check the Allotment Status 

    The system will display your IPO allotment status, i.e., whether the shares are allotted or not.

    Additionally, the registrar usually sends updates about allotments to your registered email. If the IPO was applied using the UPI ASBA method, you can also check your bank account for unblocked amounts. Blocked funds indicate successful allotment, while non-allotment of shares is followed by unblocking of funds.

    Read Also: Apply in IPO Through ASBA- IPO Application Method

    Conclusion

    Applying for an IPO can lead to wealth creation and allow an investor to invest in high-growth companies. Understanding the eligibility criteria for retail, institutional, or foreign investors is important to simplify the application process and prevent rejections. Stay informed, be financially prepared and follow changes in regulations to enhance your chances of successfully investing in IPOs and benefiting in the long run. Consult your financial advisor before investing in IPOs.

    Frequently Asked Questions (FAQs)

    1. Can I modify or cancel my IPO application?

      Yes, you can modify or cancel your application until the IPO bidding period ends.

    2. Can NRIs apply for IPOs?

      NRIs can apply for IPO through their NRE or NRO demat account.

    3. What happens if I do not have a PAN card?

      A PAN card is mandatory to apply for an IPO; without it, your application will be rejected.

    4. Can I apply for multiple IPOs simultaneously?

      You can apply for multiple IPOs if you meet the eligibility criteria.

    5. How is IPO allotment determined?

      Allotment depends on the number of shares offered and the demand from different investor categories.

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