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Read MoreFrom PL Capital, you can apply IPO online in 5 simple steps:
What is an Initial Public Offering (IPO)?
An IPO is the process through which private companies sell their shares to the public for the first time. In this process, the company’s shares become available to buy and sell on the stock exchanges, and a privately owned company becomes a public limited company.
The proceeds of an IPO can be used for investing in new technology or projects, business expansion, repayment of debts or existing investors selling their stakes.
How Does an IPO Work?
The IPO process starts when a company hires investment banks to evaluate its finances and sign an underwriting agreement. Then, it prepares a Draft Red Herring Prospectus (DRHP) and submits it to SEBI, while also applying to stock exchanges.
After getting approval, the company promotes the IPO through roadshows and sets a price or price range. The IPO opens for public bidding for 3 days. After bidding, shares are allotted, and refunds are given if not allotted.
On the listing day, the company’s shares are listed on the stock exchange for public trading.
History of IPOs
The world’s first IPO was launched by the Dutch East India Company in 1602. Over time, IPOs became a major tool for corporate fundraising globally.
In India, Reliance Industries launched one of the first major IPOs in 1977, even before SEBI was established. During economic liberalisation in the 1990s, India began allowing foreign investments in IPOs.
Types of IPOs in India
Fixed Price Issue
A Fixed Price Issue sets a predetermined share price decided by the company and its merchant banker after assessing the company's value and risks. Investors pay this fixed price upfront during subscription.
Book Building Issue
In contrast, a Book Building Issue sets a price band (floor and cap), and investors bid within this range during the IPO. The final share price is determined based on demand and bids received and allows market-driven price discovery.
IPO Application Process on PL Capital
If you have an active Demat Account with us, you can simply apply online IPO in these steps:
Step 1
Go to our website or open our mobile application. This is available on the Play Store or the App Store for download.
Step 2
Log in to your account and go to the IPO section.
Step 3
From the list of IPOs, you can apply for Pre-Open and Open IPOs.
Step 4
Then, enter the number of lots, and bid price, and choose the investor category (such as regular, employee, shareholder, etc.).
Step 5
Enter a valid UPI ID, click on apply and accept the autopay request.
Who is Eligible to Apply for an IPO?
A Demat Account is mandatory to apply to invest in IPO. However, if you do not have any, do not worry, you can open a new Demat Account with zero account opening charges from PL Capital.
Any individual who has a valid PAN card and a Demat Account can apply for an IPO in India. Additionally, you need to have sufficient funds in your bank account while applying for an IPO.
Advantages and Disadvantages of IPOs
These are some of the key advantages of an IPO:
Access to Significant Capital
An IPO helps to raise funds to support business growth, expansion, or paying existing debt.
Improved Public Profile and Brand Recognition
After becoming a publicly traded company, a company enhances market credibility and raises brand visibility.
High Upfront Costs
Preparing for an IPO involves significant expenses, including legal, accounting, and marketing fees.
Increased Regulatory Scrutiny and Compliance
Ongoing reporting requirements and corporate governance obligations add to the administrative load and operational complexity.
Why Do Companies Launch an IPO?
Usually, companies announce an IPO to raise funds from public investors by giving them equity shares. This fund is utilised for paying off debt, business expansions, research, etc.
IPO allows the existing investors and promoters to sell their stakes and book profits. Being a public limited company, it can improve its reputation and visibility, which helps to attract more customers, lenders and investors into the business.
IPO Timeline
Follow this table to understand the tentative timeline of the IPO process:
| Name of the Phase | Timeline |
|---|---|
| IPO Planning | 2 weeks |
| Due Diligence | 4 to 5 weeks |
| Preparation of DRHP | 1 week |
| Approval by SEBI | 4 to 8 weeks |
| Submission of RHP | 2 to 3 weeks |
| Launch of the IPO | Minimum 3 days |
| IPO Allotment | Within 1 day of issue closure |
| Listing | Within 3 days of issue closure |
| Post-Issue Process | 2 to 3 weeks |
FAQs on IPOs
IPO stands for Initial Public Offering, which is when a private company offers its shares to the public for the first time.
To apply IPO, you should review the company’s financials, business model, management background, growth prospects, risks, and how it plans to use the funds.
GMP means Grey Market Premium. It is the unofficial premium at which IPO shares are traded before listing that indicates market expectations about the listing price.
Inexperienced investors may follow only GMP to invest in an IPO, which can be risky. Before investing in shares, it is crucial to thoroughly analyse the company’s financial details, risks, objectives, etc.
