What Is an IPO and How Does It Work in India?
An IPO (Initial Public Offering) is when a company sells its shares to the public for the first time and lists them on a stock exchange (NSE and/or BSE). This guide explains how an IPO works in India, how to apply with UPI, how shares are allotted, and what to check before you invest.
How an IPO works
- Filing: the company files a Draft Red Herring Prospectus (DRHP) with SEBI, describing its business, finances, risks and how it will use the money.
- SEBI observations: SEBI reviews it. The company then files the final Red Herring Prospectus (RHP) and announces the price band and dates.
- Bidding: the issue stays open for at least three working days. Investors bid in lots within the price band.
- Allotment: shares are allotted after the issue closes.
- Listing: since 1 December 2023, SEBI requires listing within T+3 working days (T = the day the issue closes).
Fresh issue vs offer for sale
- Fresh issue: new shares are created and the money goes to the company (for expansion, repaying debt and so on).
- Offer for sale (OFS): existing shareholders (promoters, early investors) sell their shares, and the money goes to them, not the company.
Many IPOs are a mix. The RHP shows the split. A large OFS isn’t necessarily bad, but it’s worth knowing who is selling.
Investor categories
| Category | Who | Typical reservation |
|---|---|---|
| Retail (RII) | Individuals bidding up to ₹2 lakh | At least 35% of the issue (10% for companies listing under SEBI’s alternative eligibility route) |
| Non-institutional (NII / HNI) | Bids above ₹2 lakh | At least 15% |
| Qualified institutional buyers (QIB) | Mutual funds, banks, insurers, FPIs | Up to 50% (at least 75% under the alternative route) |
Some IPOs also have an employee quota or a shareholder quota for existing shareholders of the parent company.
How to apply for an IPO (UPI)
- You need a demat and trading account and a UPI ID linked to a bank account in your name.
- Open the IPO section in your broker’s app, choose the issue, enter the number of lots and your bid price (retail investors can tick cut-off to bid at the final price).
- Enter your UPI ID and submit.
- Approve the mandate in your UPI app before the cut-off time on the closing day. The money is only blocked, not debited (this is called ASBA).
- If you get shares, the blocked amount is debited. If not, the block is released.
You can also apply through your bank’s net banking (ASBA). UPI can be used for bids up to ₹5 lakh.
How allotment works
If the retail portion is oversubscribed, SEBI rules require that as many retail applicants as possible get the minimum lot, chosen by a computerised lottery. Applying for more lots doesn’t improve your chance, and multiple applications with the same PAN are rejected. Check allotment status on the registrar’s website (named in the RHP) or on NSE/BSE, using your PAN or application number.
What to check before investing
- Objects of the issue: what the money will be used for.
- Financials: revenue and profit trend over three years, debt, and cash flow.
- Valuation: price-to-earnings compared with listed peers (the RHP lists them).
- Risk factors: the RHP has a dedicated section. Read it.
- Subscription and GMP: heavy subscription and “grey market premium” chatter are not guarantees. The grey market is unregulated.
Listing gains are never guaranteed. Shares can list below the issue price.
Frequently asked questions
What is the minimum amount to apply for an IPO?
One lot. The lot size is set so that its value falls within a range fixed by SEBI (typically ₹14,000–15,000 for mainboard IPOs). The RHP and your broker’s app show the exact amount.
What is an SME IPO?
A smaller issue on the NSE Emerge or BSE SME platforms. It has larger minimum application sizes and higher risk.
Is IPO listing gain taxable?
Yes. If you sell within 12 months, it’s a short-term capital gain (20%). After 12 months it’s long-term (12.5% on gains above ₹1.25 lakh a year).
Related guides
Sources: SEBI, SEBI Investor: apply through ASBA, NSE, BSE. General information, not investment advice.