If you follow stock market news, you must have heard the term IPO many times. Many companies launch their IPO to raise funds and become listed on the stock market. But what exactly is an IPO, and why do companies and investors look forward to it? Let’s understand in simple words.
IPO Meaning
IPO stands for Initial Public Offering. It is the process where a private company becomes a public company by offering its shares to the general public for the first time. Before the IPO, the company is usually owned by founders, promoters, and a few investors. After the IPO, anyone can buy shares of the company through the stock market.
Why Do Companies Launch an IPO?
A company may launch an IPO for different reasons, such as:
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To raise funds for business growth, expansion, or new projects.
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To repay debt and improve financial stability.
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To gain public visibility and trust in the market.
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To give early investors an exit option and allow them to sell their stake.
In simple terms, an IPO helps the company grow and allows the public to become a part of that growth.
How Does an IPO Work?
The IPO process involves several steps:
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Company decides to go public and hires investment bankers.
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Price band is decided – the range within which investors can bid.
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The IPO is opened for the public for 3 days, where people apply using their demat account.
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Once the issue closes, shares are allotted based on demand.
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The shares get listed on the stock exchange (NSE & BSE), and trading begins.
If the IPO is highly demanded, it may get oversubscribed, meaning more people applied than the number of shares available.
Types of IPO Investors Should Know
There are mainly three investor categories in an IPO:
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Retail Investors (Normal individual investors like us)
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High Net-Worth Investors (HNI)
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Qualified Institutional Buyers (QIB) like mutual funds, banks, etc.
Generally, a portion of IPO shares is reserved for each category.
How to Apply for an IPO
Applying for an IPO is very simple today. You just need:
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A Demat Account
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A Trading Account
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UPI ID for payment approval
You can apply through brokers like Zerodha, Upstox, Groww, or even your bank’s app. Just select the IPO, enter the number of shares, approve the payment through UPI, and your application is done.
Benefits of Investing in IPOs
Investing in an IPO can have some advantages:
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Possibility of Listing Gains: If the IPO lists at a higher price than the issue price, investors can earn quick profit.
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Chance to invest early in a growing company.
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Long-term wealth creation if the company performs well.
However, not all IPOs give listing gains. Some may list at a lower price too.
Risks in IPO Investment
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The company’s performance after listing is not guaranteed.
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Prices may fluctuate due to market conditions.
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If the company does not grow as expected, returns may be low or negative.
So, it is better to do proper research before investing.
Things to Check Before Applying for an IPO
To make smarter decisions, look at:
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Company’s financial performance
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Business model and future growth plans
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Risk factors mentioned in the prospectus
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Promoter background
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Industry competition
Reading review reports and watching expert analysis videos also helps.
Should You Invest in an IPO?
If you are a new investor, IPOs can be a good way to start investing in the stock market. But remember, investment should be based on research, not just hype. Don’t apply only because everyone is talking about it. Look at the company’s stability and long-term vision.
Conclusion
An IPO gives the general public a chance to become part of a company’s growth journey. Many companies that are big today, like Reliance, TCS, Infosys, Zomato, and many others, all started with IPOs. As an investor, you should understand the company’s value before applying.
Investing in IPOs can be rewarding, but it is always wise to study, compare, and make decisions carefully. With the right knowledge and patience, IPOs can become a good investment opportunity for the future.
