How Does IPO Investment Work? A Clear Guide for Beginners in 2025

🏛️ What Is an IPO?

An Initial Public Offering (IPO) is a process where a privately held company offers its shares to the public for the first time by listing them on a stock exchange. This process transforms the company from private to public, allowing investors to buy ownership through shares.

📚 As defined by Investopedia, an IPO is a crucial method for companies to raise capital by selling equity to public investors.

🚦 How Does IPO Investment Work?

Investing in an IPO involves several steps—from a company’s decision to go public to the investor receiving allotted shares. Here’s a detailed walkthrough of the process:

🔍 1. Pre-IPO Phase: Why Companies Go Public

Before launching an IPO, a company prepares by:

Auditing financial records

Valuing its business

Appointing merchant bankers (underwriters)

Drafting a Draft Red Herring Prospectus (DRHP)

This DRHP is submitted to SEBI (Securities and Exchange Board of India) for approval.

📌 Visit SEBI’s website to explore active IPO filings and approved prospectuses.

📄 2. Approval and Announcement

Once SEBI approves the DRHP, the company announces:

IPO opening and closing dates

Price band (e.g., ₹100–₹120)

Lot size (minimum number of shares to apply)

Exchange listing details (NSE/BSE)

📝 3. IPO Application: How Investors Apply

You can apply for IPOs in India via:

✅ ASBA (Application Supported by Blocked Amount)

Through your net banking account—no money is debited unless shares are allotted.

✅ UPI-Based Applications

Via brokers like Zerodha, Groww, Paytm Money, etc.

Required Details:

PAN card

Demat Account

UPI ID or bank account with ASBA facility

🧭 Check IPO eligibility and process via NSE India

⚖️ 4. Book Building and Pricing

Most IPOs follow a book-building process, where:

Investors place bids within the price band

The company evaluates demand

Final price is decided based on the highest subscription tier (often Qualified Institutional Buyers or QIBs)

📦 5. Share Allotment

After bidding closes:

Shares are allotted based on demand and category

If oversubscribed, lottery system is used

Unsuccessful applicants get refunds or releases on blocked funds

Allotment status can be checked online within 7 days via the registrar’s website.

📈 6. Listing on Stock Exchanges

On the listing day:

The stock gets listed on NSE/BSE

Opening price is determined by market demand

Investors can choose to hold or sell shares on the exchange

📊 Moneycontrol regularly tracks IPO listings, GMP (Grey Market Premium), and debut performance.

🎯 Real-Life Example: LIC IPO (India)

Issue Size: ₹21,000 Cr

Price Band: ₹902–₹949

Oversubscription: 2.95x overall

Listing Price: ₹867 (discount to issue price)

Despite the hype, the stock opened below the issue price due to market sentiment—highlighting the risks and volatility in IPO investments.

📌 Benefits of IPO Investment

📈 Early access to promising companies

💼 Diversification of investment portfolio

🚀 Potential for high listing gains

🔍 Transparency due to SEBI regulations

⚠️ Risks of IPO Investment

❗ Stock may list below issue price

❗ Unclear future financial performance

❗ Hype can distort actual valuation

❗ Lock-in periods for some categories

💡 Tips for First-Time IPO Investors

Read the Red Herring Prospectus carefully

Check Grey Market Premium (GMP), but don’t rely solely on it

Avoid applying to every IPO—assess fundamentals

Track anchor investor participation

Prefer companies with solid business models

💼 Refer to Economic Times for expert IPO analysis and listing reviews.

🧾 Conclusion

Understanding how IPO investment works is essential for anyone interested in building wealth through equity markets. From company registration to allotment and stock listing, each phase carries both opportunity and risk.

By staying informed, applying wisely, and managing expectations, investors can benefit significantly from India’s dynamic IPO ecosystem.

Whether you're a new investor or looking to diversify your portfolio, IPO investing can be rewarding—if done right.

📌 Need Help?

Track active IPOs and register for alerts at:
🔗 NSE India – Upcoming IPOs
🔗 SEBI Circulars