What is IPO and How Does it Work?

What is IPO and How Does it Work

Everyone wants to increase their money, many methods are adopted for this, but the the best method is said to be investment. After investing, you can get your money done. Now it depends on you how you invest your money in Crypto, Stocks, Mutual Funds, IPO, etc.

In this article we are going to discuss about investing in IPO. You can get very good returns by investing in IPO. If you also want to know what is IPO, what are its benefits, how to invest in it, to know all the information about IPO. Please read this article till the end.

What is IPO?

The full form of IPO is Initial Public Offer. When a company issues its common stock or shares to the public, it is called IPO. After IPO, shares of the company can be purchased in the market. The purpose of launching IPO is to collect funding. This happens so that the company can grow further

IPO is mostly launched by small and new companies so that the company can expand its business even more, but sometimes IPO is also launched by private companies so that they can launch their business in the public market. First, the company has to submit all its documents to SEBI. When SEBI verifies all the documents and gives permission to the company to launch the IPO, then the company can launch the IPO without any hassle.

Typically, a large IPO is underwritten by a consortium of investment banks led by one or more large investment banks. The underwriters receive a commission on the sale of shares, which is based on the price of the shares sold. The company that has sold the largest portion of the IPO gets the highest subscription. To apply for any IPO, a Demat/Trading Account is required. However, there are 2 types of IPOs.

Types of IPO

A) Fixed Price

Whatever companies decide for the sale of their shares, the investor gets to know about the price of the shares which the company decides to make public. The demand for shares can be ascertained after the issue is closed. If an investor If anyone wants to be a part of this IPO, he has to pay the full price of all the shares of the IPO.

B) Book building

In this IPO, the company offers 20% price band on the shares to the investors. Interested investors bid on the shares before the final price is finalised. Here the investors need to know the number of shares they want to buy and the amount they want to buy per share. The lowest price a share is willing to pay is known as the floor price. The highest price the share is willing to pay is known as the cap price. The final decision regarding the price of shares is determined by the bids of investors.

How Does an IPO Work?

Before applying in IPO, investors should keep some things in mind. It works like a process and one must have knowledge about it.

IPO Start/End Date: Before applying for any IPO, you must know about its Start/End date. Generally, one gets 3 to 5 days time to apply in any IPO, but a good investor should be patient and apply in IPO. One should not apply in any IPO on the first day or the last day.

Allotment begins: If you had applied in the IPO in the right way and your luck is also good, then after 5 to 7 days of the end date of the IPO, you will come to know whether you have got the IPO or not. If you get the IPO, then your shares will be allotted. Your Demat Account will be credited on the same day.

Refund Initiation: If you do not get the IPO on the day of allotment, then your money gets refunded to your bank account the next day after allotment. Sometimes due to some technical error, the refund may take a day, so do not worry too much. Your money will be credited to your account on the day

Allotment Date: If your luck is good and you get the IPO, then the shares of the company are allotted after 2 to 3 days.

Listing On Exchange: This is the last stage of IPO. On this day, the company's shares are finally listed on stock exchange. On this day, you get to know how much money you have earned or lost in your IPO. After this day, if you are in the company for a long term. If you want to invest then you can continue but if you have come to earn profit then you can also quit by selling shares.

How to Invest in IPO

Normally, any company issues for 3 days. During any public holiday, this period can be longer. Within this period, the investor has to apply for IPO. In any IPO, you can apply for it by visiting the website of that company or You can apply with the help of any brokerage application. If I talk about myself, I use Upstox Demat/Trading account because this application is easy to use, there are no hidden charges in this application.

You can apply in IPO only through your Demat/trading account. You have to go to your Demat Account and select the IPO in which you want to apply because more than one IPO is open at a time.

Why Does a Company launch an IPO?

After all the information about IPO, this thought must be coming in your mind that how does it earn money? Let us know.

IPO is started by collecting funds from any company or by a bank group. When that company is on the path of progress, it needs funding to expand. IPO is brought to collect that funding from the general public. Before launching an IPO, any company submits its documents to SEBI which include the financial condition of the company, Debt, Loss/Profit, why the company is launching an IPO, what will be the use of the money received from the IPO, etc. information is available

If all the documents are verified by SEBI then the company can do the IPO in the market without any problem. The bank or group of banks put in the money before funding the IPO and even before the shares of the company are listed on the exchange. have bought

The bank makes its profit on the difference in price from the time the shares are officially offered to the public, thus generating interest from investors who use the headlines as a way to help supplement their assessment of the value of the potential offering. Can develop other information.


In today's article, we got complete information about IPO (Initial Public Offer). What is IPO, how does it work, what are its objectives, should we invest in it? Through this article, we have given you complete information about IPO but If you have any question regarding audio then you can ask us in comment. Don't forget to leave your valuable comment.

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