Not less than 35% of a book built IPO by a profitable company is reserved for retail investors. A retail bid is capped at ₹2,00,000 (SEBI ICDR FAQs, 15 May 2025). Those numbers matter more than any definition. What is IPO in practice? The first time an unlisted company offers shares to the public.
What is IPO?
SEBI defines an IPO as an unlisted company offering shares to the public for the first time, as a fresh issue, a sale of existing shares, or both.
Asked as what is IPO in share market terms, the answer is the primary market, where a share is created rather than passed between investors.
What Does IPO Mean? (IPO Full Form Explained)
The IPO full form is Initial Public Offering.
- Initial: the company’s first public offer.
- Public: open to investors at large, not a chosen few.
- Offering: shares put up for subscription.
What does IPO mean next to the alternatives? A private placement reaches not more than 200 persons, a rights issue only existing shareholders.
Why Do Companies Launch an IPO?
Money. The form of it matters more.
A fresh issue creates new shares and the proceeds reach the company. An offer for sale is shareholders selling down, and that money goes to them. Every offer document splits the issue.
Promoters must contribute 20% of post issue capital, locked in for one and a half years.
How Does an IPO Work?
A merchant banker files the draft offer document with SEBI, which examines the disclosures but does not approve the issue, fix the price or vouch for the company.
The price band comes at least two working days before opening. Bidding runs 3 to 7 working days, extendable by 3 if the band is revised. Listing follows three working days after closing.
Types of IPOs
- Fixed price issue: the price is printed in the offer document, so the cost is known upfront.
- Book built issue: the document carries a floor price or a band, and the price is discovered from demand. The floor to cap spread is 5% to 20%, and only retail investors may bid at cut-off.
- SME issue: smaller companies, whose draft offer document goes to the exchanges rather than SEBI.
Who Can Invest in an IPO?
Bid size decides your category, and category decides your odds.
Category | Bid size | Share of net offer |
Retail individual investors | Up to ₹2,00,000 | Not less than 35% |
Non-institutional investors | Above ₹2,00,000 | Not less than 15% |
Qualified institutional buyers | Institutions only | Not more than 50% |
A company failing SEBI’s profitability norms must allot at least 75% to institutions, leaving retail no more than 10%.
Benefits of Investing in an IPO
You buy at the issue price, before the market sets its own level.
Allotment carries no discretion. Every retail applicant who receives anything gets at least the minimum bid lot. A company may also offer retail investors up to a 10% discount on the price other categories pay.
Risks of Investing in an IPO
There is no listed price history to study through a market cycle.
Pricing is free. The issuer and merchant banker set it from demand, so an issue can be expensive and fully compliant at once. Oversubscription can leave you with nothing.
Investors uneasy about one unproven company sometimes invest in mutual fund schemes instead. An index ETF spreads money the same way. That reduces unsystematic risk, not market risk.
Eligibility Criteria to Apply for an IPO
Three mandatory requirements.
- A PAN, quoted on the application form.
- A demat account, since public issue shares are credited only in demat form.
- A bank account in your own name. Third party accounts and UPI IDs are rejected.
Brokers that let you open demat account online usually verify through PAN and Aadhaar.
How to Apply for an IPO Online?
Every applicant uses Application Supported by Blocked Amount (ASBA), which blocks money rather than debiting it.
- Open the IPO section in your broker’s app.
- Choose the issue, lot quantity and price, or select cut-off.
- Enter your UPI ID. Individual applications up to ₹5 lakh use UPI.
- Approve the mandate before 5:00 PM on closing day.
Applying costs nothing. Selling after listing is a delivery trade. Indiabulls Securities charges 2.5% or ₹11 per executed order, whichever is lower, on NSE (CM, FO, CD), BSE (CM, FO) and MCX.
Also Read - Once you have applied for an IPO, learn how to check your IPO allotment status online to find out whether shares have been allotted to you.
IPO vs FPO: What’s the Difference?
Point | IPO | FPO |
Issuer | Unlisted before the issue | Already listed |
Price reference | None yet | Live market price |
Band notice | 2 working days | 1 working day |
The gap is information. An FPO has a live traded price to compare against; an IPO does not, leaving the offer document as your only evidence.
Also Read - Want to understand the distinction in greater detail? Explore the difference between IPO and FPO to compare how these offerings differ in terms of eligibility, pricing, process and investment considerations.
Things to Check Before Investing in an IPO
Read the risk factors section first. Management writes it, and it states what can go wrong.
Then check the fresh issue and offer for sale split, and the use of proceeds.
Size the application last. A one-time bid shifts your allocation more than a monthly SIP does.
Conclusion
An IPO is a mechanism, not an opportunity by itself. The process is well defined: fixed categories, published allocation floors, no discretion in allotment, and blocked money.
None of it tells you whether the company is worth owning at that price. Set your maximum before the issue opens.
Also Read - Before making an investment decision, learn how to analyse an IPO before investing by evaluating the company’s financials, valuation, risks, objectives and offer structure.
