IPOs - Initial Public Offerings

Basics of IPO

What is an initial public offering (IPO)?

Initial public offering (IPO) can simply be defined as the process in which a private company offers its share to the public for the first time, and in turn, becomes a publicly-traded company. Through this process of IPO, the company can raise its equity capital.

How does an IPO work?

1. Private companies that have achieved the ‘unicorn status’ in their growth trajectory, generally decide on ‘going public’. 

2. In India, the process of IPO is regulated by the Securities and Exchange Board (SEBI), so the first step is to register with SEBI.

3. After submitting all the required documents and on receiving approval from SEBI, the company is required to determine the share price and the number of shares it plans to issue.

4. Following this, the company must choose between the two types of IPO issues- Fixed price IPO and Book Building IPO. 

5. After IPO valuation, the company’s shares are made public.

Procedure for investing in IPO

The first step in investing in an IPO is choosing a suitable IPO. One can refer to IPO watch or IPO calendar for the list of latest IPOs. After choosing the IPO of interest, there are simple steps that need to be followed:

1. Acquire the application form, either physically from a broker, a distributor, or from an online portal like 5paisa.

2. Fill the form with all the required details including personal, bank, and Demat account details.

3. Provide details about the total investment amount.

4. The shares will be allotted to an individual within 10 days of closing of the offer.

Who is eligible for applying for an IPO?

An adult who is capable of entering into a legal contract is considered eligible for investing in an IPO. The individual can be a qualified institutional investor, anchor investor, retail investor or a high net-worth individual. Apart from this, some basic criteria for eligibility are:

1. The individual should have a pan card issued by the income tax department.

2. A valid Demat account

3. It is not mandatory to have a trading account for investing in an IPO but it is advisable to have one. A trading account will help an investor sell the stocks present on the IPO listings, in near future.

Steps to apply for an IPO from 5paisa

There are five steps to apply for an IPO from 5paisa

1. Login to the 5paisa account and select the issue from the current IPO section.

2. Based on the individual’s preference, one can select the number of lots and price for the desired IPO.

3. Enter the UPI ID, check all the details, and select submit. With this, the process is completed and the bid will be placed with the exchange.

4. Finally, the individual needs to approve a mandate notification received in their UPI app.