| June 14, 2023
Initial Public Offering (IPO): A Comprehensive Guide
India is touching new heights in terms of business growth, and it is quite evident with the number of IPOs launched in the previous few years. If you are considering investing in upcoming IPO in India, then you must want to know how the IPOs are performing in the recent past, isn't it? So, out of 119 IPOs launched between 2020 and 2022, only 1 IPO couldn't make it, which indicates the huge success of new-age companies' IPOs. This also showcases the new Indian approach towards businesses and why investing in IPOs can be a wise choice for investors.
Until 2023, there have already been close to 60 IPOs launched, and many upcoming IPO launches in India are under the pipeline this year. However, before you dig into the individual IPOs to find the best IPO for yourself using the IPO screener, let's understand what is ipo and how does it work?
What is an IPO?
IPO or Initial Public Offering can be described as making a private company public by selling its shares to the general public in the country. Businesses opt for IPO primarily for two reasons. One is to raise funds to grow the business, and the second is to become a public enterprise with more recognition.
With the digitalisation of investments, nowadays, it is not difficult to find retail investors in IPO, which earlier was. Suppose you want to invest in IPOs launched in the coming months. In that case, you can easily find the information online or contact ipo consultants in India for better suggestions regarding which IPO will suit your investment profile.
How does IPO work?
The entire process of IPO involves–
- The company wants to issue the shares by contacting an Underwriter and preparing the Draft Red Herring Prospectus (DRHP). This document will have all the information related to the company, its financial structure, business methods, objective for the issue, purpose of the issue, number of shares to be issued, share price, price range or bands, and everything that an investor must know about the company before investing in their upcoming IPO.
- Once the DRHP is created, it is submitted to SEBI for evaluation; if SEBI approves it, the company publishes the final Red Herring Prospectus (RHP) for prospective investors.
- You will now know the issue date, price range, and issue type. Once the IPO opens, it usually stays for around five days, but the timeline can vary from 3 to 21 days.
- At this time, the investors must bid for the stocks via their brokers or banks.
- After the IPO closes, the company evaluates the application received for the IPO and then allots shares accordingly.
IPOs are usually of two types, and the company mentions the same in its RHP. These are –
- Fixed Price Offering: As the name suggests, when the company issuing the shares fix a price for each share, it is known as a Fixed Price Offering or Fixed Price Issue. In this case, the share demand is known after the IPO is closed and not in between. Investors investing in a fixed-price offering must pay the entire amount to apply for the number of shares they want to purchase.
- Book Building Offering: On the other hand, under the book-building method of IPO, the price of the issue is determined after the IPO is closed. The issuing company provides a price band of around 20%, and the investors looking to invest can bid any price within this range. The demand for the shares under this method can be known daily as the IPO progresses towards closing, and this helps the company determine the issue price. Once the IPO is closed, the share price will be determined per the demand for the same and analysing the investor bids.
How can you invest in an upcoming IPO in India?
If you are thinking about investing in any of the upcoming IPO in India, then here is the method of how you can invest in one with ease –
- First, you will need to open a demat account, bank account, and trading account if you wish to trade the shares after getting the allotment or invest via the UPI route.
- Now you can apply through the UPI route or ASBA route. Investing in IPO has become easier with the UPI route, initiated with digitalising the investment space.
- To apply for upcoming IPOs, you have to log into your trading account, or you can easily invest using your Findoc Account via the UPI route.
- Enter the number of shares or lots you want to purchase.
- Enter the price you want to purchase the shares if it is a book-building offering.
- Enter the details in your IPO application form.
- Enter your UPI ID.
- You will receive a message for blocking the funds for the amount you want to invest in the IPO. Click on the approve button, and your application will be submitted.
- Under this method, you must determine the bank participating in the IPO.
- You can find a suitable IPO for your investment portfolio with the IPO screener.
- Click on the 'Apply' button to apply for the IPO.
- The application form will open, which you will have to fill in with the details like name, address, PAN details, bank details, and others as required.
Then submit the form, and you will be asked to confirm the amount to be blocked for the IPO investment; once you confirm, your application will be submitted.