What an IPO is, in one line
An IPO is the moment a private company becomes a listed one. It offers shares to the public, investors bid for them, and the shares then trade on a stock exchange like any other listed share.
After listing, anyone can buy or sell the shares on NSE or BSE at the market price. Before listing, the only way to get them is to apply in the IPO.
Why companies go public
A company runs an IPO for one or both of two reasons:
- To raise money for itself. It creates new shares and uses the money to grow, repay loans or fund working capital. This part is called the fresh issue.
- To let existing shareholders sell. Promoters, private equity funds or early investors sell some of their shares. This part is called the offer for sale (OFS), and the money goes to them, not the company.
Many IPOs have both. The split matters: a large OFS means much of your money pays existing owners rather than funding the business. Every IPO page on this site shows the split from the offer document.
How an IPO works, step by step
- Draft filed. The company and its lead managers file a draft red herring prospectus (DRHP). Mainboard drafts go to SEBI; SME drafts go to the stock exchange.
- Review. The draft is public for comments for at least 21 days. SEBI, or the exchange for SME issues, reviews it and issues observations.
- RHP and price band. The company files the red herring prospectus (RHP) and announces the price band at least two working days before bidding opens.
- Anchor investors. Large institutions can bid one working day before the issue opens, for up to 60% of the institutional portion.
- Bidding. The issue is open for at least three and at most ten working days. You bid through your broker or bank.
- Allotment (T+1). One working day after closing, the registrar and the exchange decide who gets shares.
- Credit and release (T+2). Shares reach demat accounts, and money for bids that got nothing is released.
- Listing (T+3). The shares start trading on the third working day after closing.
T is the closing day, and the T+3 timeline has been mandatory since 1 December 2023.
Price band and lot size
Most IPOs in India are book built. The company sets a price band, a range such as ₹258 to ₹271. The upper end must be at least 105% and at most 120% of the lower end.
You bid at a price within the band, or tick cut-off to accept whatever final price is set. Bids are in lots, a fixed number of shares. For a mainboard IPO, one lot is worth ₹10,000 to ₹15,000 at the upper price.
Some smaller issues use a fixed price instead of a band. You simply apply at that price.
A worked example
Say an IPO has a price band of ₹258 to ₹271 and a lot of 55 shares. The issue opens on a Monday and closes on Wednesday.
| Step | What happens to you |
|---|---|
| Monday | You bid for 2 lots at cut-off. Your bank blocks 110 × ₹271 = ₹29,810. |
| Wednesday 5 pm | Last time to approve the UPI mandate. |
| Thursday (T+1) | Allotment. Suppose you win one lot of 55 shares at ₹271. |
| Friday (T+2) | ₹14,905 is debited and ₹14,905 released. 55 shares reach your demat. |
| Monday (T+3) | The shares list and you can sell or hold them. |
This uses illustrative numbers and is our calculation. In a heavily oversubscribed IPO, most retail applicants get no shares at all, and the whole amount is released on T+2.
Who gets what share of an IPO
Shares are set aside by investor category. For a profitable company listing on the main board, the usual split is:
| Category | Who | Share of the offer |
|---|---|---|
| Retail | Individuals bidding up to ₹2 lakh | At least 35% |
| Non-institutional (NII) | Bids above ₹2 lakh | At least 15% |
| Qualified institutional buyers (QIB) | Mutual funds, insurers, foreign funds | Up to 50% |
A company that does not meet SEBI’s profit track record must give at least 75% to QIBs, and the retail share is capped at 10%. Our guide on how IPO shares are allotted explains how each category is shared out.
Mainboard and SME IPOs
Larger companies list on the main boards of NSE and BSE. Smaller companies can list on the SME platforms, BSE SME and NSE Emerge.
SME IPOs need a much larger minimum investment, usually above ₹2 lakh. Their offer documents are reviewed by the exchange, not SEBI. Trading after listing is also in lots, and a market maker keeps quotes going. Our SME vs mainboard guide covers the differences.
Applying in the IPO or buying after listing
You can own the same company’s shares in two ways: apply in the IPO, or buy on the exchange after listing. Each has trade-offs.
In the IPO, everyone pays the same issue price, and there is no brokerage on the application. But in a popular issue your chance of getting shares can be small, and you cannot choose how many you get.
After listing, you can buy any number of shares at the market price, with normal brokerage. You also get to see how the shares trade and how the company reports its first results as a listed company. The price may be higher or lower than the issue price.
Words you will see on every IPO page
- Issue price: the final price per share, fixed after bidding closes.
- Issue size: the total money raised, at the issue price, across the fresh issue and OFS.
- Subscription: how many times the shares on offer were bid for, by category.
- Registrar: the firm that processes applications and publishes allotment status.
- Lead managers: the investment banks that run the issue and prepare the documents.
- Listing gain: the difference between the issue price and the price at which shares open on listing day.
Common mistakes to avoid
- Treating an IPO as a sure gain. Some IPOs list below the issue price. Listing day prices depend on demand, not on the company’s quality alone.
- Bidding below the final price. A bid below the final price is rejected. Ticking cut-off avoids this.
- Missing the UPI mandate. Your bid counts only if you approve the mandate in your UPI app by 5 pm on the closing day.
- Applying twice from one PAN. Only one application per PAN counts in a category. Extra ones are rejected.
- Skipping the RHP. The price band says nothing about whether the price is reasonable. The RHP’s financials, risk factors and peer comparison do.
What to read before you apply
The RHP is the most complete source on the company, its finances, the risks and how the money will be used. Our guide on how to read an RHP covers the sections that matter most.
Each IPO page on this site summarises the RHP, with the section behind every number. See open and upcoming IPOs, or start with how to apply for an IPO.
Sources: SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR), including Regulation 46 on the bidding period; SEBI circular SEBI/HO/CFD/TPD1/CIR/P/2023/140 on the T+3 listing timeline, 9 Aug 2023; Outcome of SEBI board meeting, 28 Dec 2021 (price band range, NII split, anchor lock-in).
Frequently asked questions
What is the full form of IPO?
Initial public offering. It is the first time a company offers its shares to the public.
Who can apply for an IPO in India?
Anyone with a PAN, a demat account and a bank account that supports UPI or ASBA. Individuals bidding up to ₹2 lakh in a mainboard IPO apply as retail investors.
Is an IPO the same as listing?
No. The IPO is the sale of shares. Listing is when those shares start trading, usually three working days after the issue closes.
Does the company get all the money raised in an IPO?
Only from the fresh issue. Money from an offer for sale goes to the shareholders who sell, not to the company.
How much money do I need to apply for an IPO?
One lot at the upper end of the price band. SEBI's rules keep the minimum application in a mainboard IPO between ₹10,000 and ₹15,000. SME IPOs need much more, usually above ₹2 lakh.
Is my money taken when I apply?
No. It is blocked in your bank account. You pay only for the shares you are allotted, and the rest is released on the second working day after the issue closes.