What is an IPO and how do beginners actually apply for one in India?

You have probably seen the word IPO in the news, with people rushing to apply. But what is an IPO really, and how does a first-time investor actually apply for one? This guide explains it in very simple words, step by step, with no jargon.

In short: An IPO, or Initial Public Offering, is the first time a company sells its shares to the public. To apply in India, you need a demat and trading account and a bank account with UPI. You place a bid within the price band during the IPO dates, your money is blocked (not deducted) until allotment, and if you get the shares they are credited to your demat account before listing. Getting an IPO is not guaranteed, and neither are any gains.

IPO stands for Initial Public Offering. It is the first time a private company offers its shares to ordinary people. Before the IPO, only a small group owns the company. After it, anyone with a demat account can buy and sell those shares on a stock exchange.

Companies do this for two main reasons: to raise money for growth (a fresh issue), or to let existing owners sell part of their stake (an offer for sale). Some IPOs are a mix of both.

● DRHP and RHP: the offer documents the company files. The RHP is the final one, with the price band and dates. It also lists the risks. Always read it.

● Price band: a small price range within which you bid. The final price is set after bidding.

● Lot size: the smallest number of shares you can apply for in one lot. You cannot buy just one share in an IPO.

● Grey market premium (GMP): an unofficial, rumoured price gap before listing. It is not regulated, changes fast, and does not predict the listing price. Treat it as noise, not a signal.

1. A demat and trading account with a SEBI-registered broker.

2. A bank account with UPI, or net banking with ASBA.

3. Your PAN, linked to the account.

Once these are set up, applying takes only a few minutes.

4. Open the IPO section in your broker app during the IPO dates (usually a three-day window).

5. Select the IPO and enter your bid: the number of lots and the price, often the cut-off price (which means you accept the final issue price).

6. Enter your UPI ID. You will get a mandate request on your UPI app.

7. Approve the mandate. This blocks the money in your bank account. It is not taken out yet; it is only held.

8. Submit: Your application is now placed.

The other method is ASBA (Application Supported by Blocked Amount), done through your bank's net banking. The money stays blocked in your account until allotment.

One point to note: retail applications in India are currently allowed up to Rs 5 lakh. Larger bids fall into the non-institutional category. Please check the current limit, as rules can change.

● Retail investors (RII): small investors, currently applying for up to Rs 5 lakh.

● Non-institutional investors (NII): larger individual and corporate bids.

● Qualified institutional buyers (QIB): big institutions like mutual funds and banks.

9. Allotment: after the IPO closes, shares are allotted. If an IPO is oversubscribed, retail allotment is often done by lottery, so you may get fewer shares or none.

10. Refund or unblock: if you do not get shares, the blocked money is released back to you. If you get a partial allotment, only that part is deducted.

11. Demat credit: allotted shares are credited to your demat account, usually a day or two before listing.

12. Listing: the shares start trading on the exchange. The price can open above, at, or below the issue price.

● Getting an allotment is not guaranteed, especially in a popular IPO.

A listing gain is not guaranteed either. Shares can list below the issue price.

●  Ignore GMP hype and social media tips. Read the RHP and understand the business and its risks.

●  Only apply with money you can set aside for the blocked period. Do not borrow to apply.

None of this is investment advice. It is simply how the process works, so you can make your own informed decision.

An IPO is a company's first share sale to the public. To apply in India, you need a demat and trading account and UPI, you bid within the price band, your money is blocked until allotment; and shares are credited before listing if you get them. Allotment and gains are never guaranteed. For a real example, see our explainer on the NSE IPO and 5 things to check before an IPO opens.

Ans. An IPO, or Initial Public Offering, is the first time a company sells its shares to the public. After the IPO, the shares can be bought and sold on a stock exchange.

Ans. You need a demat and trading account with a SEBI-registered broker, a bank account with UPI or net banking with ASBA, and a PAN linked to the account.

Ans. Open the IPO in your broker app during the IPO dates, enter your bid and lots at the cut-off price, enter your UPI ID, and approve the mandate to block the funds. You can also use ASBA through net banking.

Ans. No. The amount is only blocked in your bank account. It is deducted only if you receive an allotment. If you do not get shares, the block is released.

Ans. No. Allotment is often by lottery when an IPO is oversubscribed, so you may get none. And a listing gain is never guaranteed, as shares can list below the issue price.

● IPO application process, UPI and ASBA, categories and allotment: SEBI investor education material and the NSE offer documents and BSE public issue pages.

● Rules and limits can change, so confirm the current position on SEBI, NSE and BSE before you apply.