what is ipo ?
An IPO, or Initial Public Offering, is the process by which a private and goverment company offers its shares to the public for the first time. This allows the company to raise substantial capital from investors, which can be used for business expansion, paying off debts, or funding new projects. In simple terms, it’s the moment when a company opens its doors to public investment and becomes listed on the stock market
What is IPO ? How an ipo work
The IPO process begins when a company’s board approves going public and appoints underwriters to manage the offering. The company prepares audited financials, files a registration statement with the market regulator, and responds to any review comments. Once approved, it chooses a stock exchange, conducts roadshows to attract investors, and sets a price range through book-building. After final pricing and share allocation, the registration becomes effective, trading starts on the listing day, and the company complies with ongoing public reporting and any lock-up period requirements.
what is ipo in the stock market?
An IPO (Initial Public Offering) in the stock market is the process where a private company offers its shares to the public for the first time. This allows the company to raise capital from investors, which can be used for expansion, paying debts, or funding new projects. After an IPO, the company’s shares are listed on a stock exchange, and anyone can buy or sell them in the open market. In simple words, it’s how a company goes from being privately owned to publicly traded
why do companies launch ipos?
Companies launch IPOs mainly to raise large amounts of capital that can help them grow and strengthen their business. The common reasons include:
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Business Expansion – Funding new projects, opening new locations, or entering new markets.
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Paying Off Debt – Reducing or clearing existing loans to improve financial stability.
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Research & Development – Investing in innovation and product development.
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Brand Visibility & Credibility – Being listed on a stock exchange increases trust and market presence.
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Liquidity for Existing Investors – Allowing early investors, founders, and employees to sell some of their shares.
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Acquisitions – Using IPO funds to buy other businesses.
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Regulatory & Strategic Advantages – Some industries benefit from being publicly listed.
Types of IPOs
There are mainly two types of IPOs based on how the price of shares is decided:
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Fixed Price Issue
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In this type, the company fixes the price of shares in advance.
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Investors know exactly how much they need to pay when applying.
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Subscription details are revealed after the issue closes.
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Book Building Issue
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The company offers a price range (e.g., ₹100–₹120), and investors place bids within that range.
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The final issue price is decided based on the demand from investors.
- Subscription status is updated during the bidding period.
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Benefits of investing in an ipo
Investing in an IPO can be exciting because it gives you the chance to become part of a company’s growth story from the very beginning. When you buy shares during an IPO, you get them at the issue price, often before they start trading in the open market. If the company performs well, your investment can grow significantly, offering strong long-term returns. Many investors are also attracted by the possibility of quick listing gains if the stock opens at a higher price on the first day. IPOs can help diversify your portfolio, giving you exposure to new sectors and innovative businesses that you might not have invested in before. Since public companies must follow strict regulations and disclose their financials, you also benefit from a higher level of transparency and accountability. In short, IPOs offer both the thrill of early entry and the potential for substantial rewards—if chosen wisely.
Risk of investing in IPOs
Investing in an IPO can be exciting, but it’s not without its risks. The biggest uncertainty is that no one really knows how the stock will perform once it hits the market—sometimes prices jump, but other times they drop below the issue price. Since many IPO companies are new to public markets, there’s limited financial history available, which makes it harder to judge their true value. In some cases, IPOs are overhyped and priced higher than what the business is actually worth. Market conditions can also play a big role—bad news or sudden volatility can send prices down quickly. There’s also the possibility that promoters or early investors might sell a large chunk of their shares once their lock-in period ends, which can put pressure on the stock price. And if demand for the shares is low, you might find it difficult to sell without taking a loss. In short, while IPOs offer opportunity, they also require caution and thorough research before investing.
How to apply for an IPOs
Applying for an IPO is actually quite simple these days, thanks to online banking and trading apps. First, make sure you have a Demat account (to hold your shares) and a trading account (to buy and sell them). Next, keep an eye on the list of upcoming IPOs—you can find details like opening dates, price band, and minimum lot size on your broker’s app or financial news sites.
Once you’ve picked an IPO you’re interested in, open your broker’s platform or your bank’s net banking portal and select the IPO option. Enter how many shares or lots you want to apply for, and choose the price—if you’re not sure, selecting the “cut-off price” is the easiest. For payment, the system will use ASBA (Application Supported by Blocked Amount), which simply means the required money will be blocked in your bank account until allotment, without actually being deducted right away.
After submitting your application, all you need to do is wait. If you get the allotment, the shares will show up in your Demat account before the listing day. If not, the blocked amount will be released back to you automatically. Simple as that!
IPO vs FPO – What’s the Difference?
Here’s a clear comparison:
| Point | IPO (Initial Public Offering) | FPO (Follow-on Public Offering) |
|---|---|---|
| Meaning | First time a company offers its shares to the public. | Additional shares issued by a company already listed on the stock exchange. |
| Company Status | Company is private before IPO and becomes public after. | Company is already public. |
| Purpose | To raise capital for the first time from public investors. | To raise additional capital after being listed. |
| Risk Level | Higher risk due to no prior market track record. | Comparatively lower risk since the company already has a performance history. |
| Investor Trust | Based on company’s potential and business model. | Based on company’s past performance in the market. |
| Share Price | Decided through valuation and market demand before listing. | Generally closer to the existing market price of the shares. |
| Regulatory Filing | Prospectus filed for the first time. | Additional offering document filed, usually simpler. |
Famous IPOs in stock market history
Over the years, the stock market has witnessed some iconic IPOs that not only raised massive amounts of capital but also created long-term success stories. One of the most talked-about examples is Alibaba’s 2014 IPO, which raised a record-breaking $25 billion, making it the largest IPO in history at that time. Saudi Aramco’s IPO in 2019 went even further, raising over $29 billion and becoming the biggest IPO ever. In the tech world, Facebook’s IPO in 2012 and Google’s IPO in 2004 stand out as milestones, turning both companies into stock market giants and rewarding early investors handsomely. More recently, Airbnb’s 2020 IPO and Rivian’s 2021 IPO attracted huge attention from investors eager to bet on the future of travel and electric vehicles. These IPOs show how going public can transform a company’s profile, raise billions in capital, and create opportunities for investors worldwide.
What is history of IPOs ?
History of IPOs
The concept of an IPO dates back several centuries. The first recorded instance of a company offering shares to the public was in 1602, when the Dutch East India Company issued shares to raise money for its trading voyages. This event is widely considered the birth of the modern stock market. Over time, the practice spread across Europe, with companies in London and Paris also raising funds through public share offerings.
In the 20th century, IPOs became a common way for businesses to expand, especially with the growth of industries like railroads, oil, and manufacturing. The post–World War II era saw a surge in IPO activity as economies rebuilt and technology advanced. Tech booms in the late 1990s and early 2000s brought IPOs like Amazon, Google, and eBay into the spotlight, attracting global investor interest.
Today, IPOs remain a major milestone for companies, symbolizing growth, credibility, and access to public capital, while also offering investors the chance to be part of a company’s journey from its early public days.
Frequently Asked Questions (FAQs) About IPOs
What do you mean by ipo
IPO stands for Initial Public Offering. It’s the process where a private company offers its shares to the public for the first time. By doing this, the company raises money from investors, which can be used for business expansion, paying debts, or funding new projects. Once the IPO is complete, the company’s shares are listed on a stock exchange, and anyone can buy or sell them in the open market. In simple words, an IPO is how a company moves from being privately owned to becoming publicly traded.
Who can apply for an IPO?
Any retail investor with a Demat and trading account can apply, provided they meet the minimum investment requirements.
How does an IPO work?
An initial public offering (IPO) is the process through which a private company becomes public by selling its stock on a stock exchange. Private corporations engage with investment banks to introduce their shares to the public market, which necessitates extensive due diligence, marketing, and regulatory compliance.
How to sell IPO share
After listing, log in to your trading account, select the IPO stock, enter the quantity, place a sell order (market or limit), and once executed, the money is credited to your bank within 1–2 days
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