What Is an IPO? Meaning, Process, Types & How to Apply Online

Direct Answer: What Is an IPO?

An Initial Public Offering (IPO) is the institutional process by which a privately held corporation sells newly issued or existing equity shares to the public for the first time, listing on stock exchanges such as the NSE or BSE. It enables companies to raise fresh expansion capital and provides an exit valuation for early founders and venture investors.

Fresh Issue vs. Offer for Sale (OFS): Where Does Your Money Go?

When analyzing any IPO prospectus, investors must distinguish between the two primary issue components disclosed in the Draft Red Herring Prospectus (DRHP):

Fresh Issue of Shares

The company creates and issues brand-new equity shares. The capital raised flows directly into the company's balance sheet to fund new factories, debt repayment, research, or working capital. This directly expands the company's equity base.

Offer for Sale (OFS)

Existing promoters, private equity funds, or early angel investors sell part of their holding to retail and institutional buyers. The capital raised flows directly to the selling shareholders—not into the company's operational treasury.

Step-by-Step Guide: How to Apply for an IPO via ASBA & UPI

In India, SEBI mandates that all retail IPO bids must be placed through Applications Supported by Blocked Amount (ASBA), ensuring your application funds remain in your bank account earning interest until the allotment is finalized.

Method 1: Net Banking ASBA (Bank Portal)

Log into your bank's Internet Banking portal (e.g., HDFC, ICICI, SBI) → navigate to e-Services → IPO Application → select the open issue → enter your Demat account Depository Participant (DP) ID → enter your bid quantity and cut-off price → verify and submit. Funds are temporarily marked as a lien in your savings account.

Method 2: UPI 2.0 Mandate via Stockbroker App (Zerodha, Groww, AngelOne)

Open your discount broker app → go to the IPO tab → select the active IPO → enter your UPI ID (VPA) → select Cut-off price → submit bid. Within 15–60 minutes, open your UPI mobile app (Google Pay, PhonePe, BHIM) and approve the blocking mandate before the 5:00 PM cut-off on issue closing day.

Crucial Bidding Rule: Retail investors should always select the "Cut-off Price" option. Bidding below the cut-off price automatically invalidates your bid if the issue is priced at the upper band.

What to Inspect in an IPO Prospectus Before Investing

Avoid relying solely on unofficial grey market rumors. Review fundamental indicators from the company's DRHP prospectus:

Peer Group Valuation: Compare the IPO price band's P/E ratio against listed industry peers. An asking multiple significantly above established market leaders warrants caution.
Debt-to-Equity & Cash Flows: Check whether operating cash flows are positive and whether the fresh issue proceeds are earmarked for productive capital expenditure rather than retiring high-interest working capital debt.
Anchor Investor Book: Inspect the list of qualified institutional buyers (QIBs) participating in the anchor allocation. Reputable domestic mutual funds and sovereign pension funds provide institutional validation.
Listing Gain Expectations: Unofficial sentiment indicators such as Grey Market Premium (GMP) can offer short-term demand insights, but carry zero regulatory backing from SEBI.

To understand allotment mechanics and basis of allotment lottery rules, read our dedicated guide on IPO Allotment Process.

Frequently Asked Questions About IPOs

What is an IPO in the stock market?

An Initial Public Offering (IPO) is the process by which an unlisted private company sells equity shares to public investors for the first time, transitioning into a publicly traded corporation listed on stock exchanges like the NSE and BSE.

What is the difference between ASBA and UPI IPO application?

Both methods use the ASBA mechanism to block funds rather than debiting them immediately. Net banking ASBA is executed directly through your bank portal, while UPI ASBA allows you to apply on your broker app and approve a payment mandate on your mobile UPI app.

What happens to my money if I do not get an ipo allotment?

If you do not receive an allotment, the bank unblocks the lien on your funds within 1 to 2 business days of the basis of allotment finalization date. No money leaves your savings account.

Why do retail investors always bid at the cut-off price?

Bidding at the cut-off price guarantees that your application is considered at whatever final issue price the company and merchant bankers discover, ensuring you are not eliminated if the IPO prices at the top of the band.

What is the difference between a Mainboard IPO and an sme ipo?

Mainboard IPOs feature lower minimum application thresholds (~₹14,000–₹15,000 per lot) with stringent historical profitability norms, while SME IPOs trade in fixed larger lots (minimum application value ₹1,00,000–₹2,00,000) on dedicated SME exchange platforms like NSE Emerge.