Welcome to our detailed IPO Frequently Asked Questions section. This guide is created to help investors across all categories understand the IPO process in the Indian stock market clearly and confidently.
If you have additional questions that are not covered here, you may contact us and we will update this page accordingly to help other investors.
Let’s understand IPO basics step by step.
1. What is an IPO and how does it work in India?
An IPO (Initial Public Offering) is the process through which a private company becomes publicly listed by offering its shares to investors.
In India, a company first files a Draft Red Herring Prospectus (DRHP) with SEBI. After regulatory review and approval, the company launches the IPO with final details like issue size, price band, and opening dates.
Companies raise funds either through:
- Fresh Issue – New shares are issued to raise capital.
- Offer for Sale (OFS) – Existing shareholders sell their shares without raising new capital for the company.
After the IPO closes and shares are allotted, the company gets listed on stock exchanges like NSE or BSE.
2. Who decides the IPO price band?
The price band is determined by the company in consultation with its lead managers (merchant bankers). SEBI reviews the disclosures but does not fix the price.
3. What is Floor Price and Cut-Off Price?
- Floor Price: The minimum price at which investors can bid.
- Cut-Off Price: The final price decided after book building. Retail investors selecting “cut-off” agree to accept the final decided price.
4. What is the difference between Fresh Issue and Offer for Sale?
- Fresh Issue increases company capital.
- Offer for Sale (OFS) allows promoters or existing shareholders to sell their holdings.
Fresh Issue strengthens company finances. OFS does not.
5. What is DRHP and RHP?
DRHP (Draft Red Herring Prospectus) is the preliminary document filed with SEBI containing business details, financials, risks, and management information.
After SEBI approval, the company files the RHP (Red Herring Prospectus) which includes final IPO details like price band and issue dates.
6. What is the role of the IPO Registrar?
The registrar:
- Collects applications
- Finalizes share allotment
- Processes refunds
- Credits shares to Demat accounts
They follow SEBI guidelines strictly.
7. What is the role of Lead Managers?
Lead managers:
- Draft IPO documents
- Coordinate with SEBI
- Decide pricing strategy
- Manage marketing and listing process
Large IPOs may have multiple lead managers.
8. What is Primary Market and Secondary Market?
- Primary Market: Where shares are issued for the first time via IPO.
- Secondary Market: Where listed shares are traded among investors.
9. Is a Demat account mandatory to apply for IPO?
Yes. A valid Demat account with NSDL or CDSL is compulsory.
10. Is PAN card mandatory for IPO application?
Yes. A valid PAN card is mandatory. Incorrect or duplicate PAN applications are rejected.
11. Can I submit multiple IPO applications using one PAN?
No. Only one application per PAN per category is allowed. Multiple applications under the same PAN are rejected.
12. How can I apply for an IPO?
You can apply via:
- ASBA through your bank
- UPI through supported brokers
- Offline application (physical form)
13. What are the investor categories in IPO?
Retail Individual Investors (RII)
Application up to ₹2 lakh.
Non-Institutional Investors (NII/HNI)
Application above ₹2 lakh.
Qualified Institutional Buyers (QIB)
Banks, mutual funds, financial institutions.
Anchor Investors
Large institutional investors investing ₹10 crore or more before IPO opens to public.
14. How long does an IPO remain open?
Typically 3 working days. In special cases, it can extend up to 10 days.
15. What is Market Lot?
Market lot is the minimum number of shares required to apply in an IPO. Investors can apply in multiples of the lot size.
16. Is IPO allotment guaranteed?
No. In case of oversubscription, allotment is done through a lottery system in the retail category.
17. What is Basis of Allotment?
It is the final document published by the registrar showing how shares were distributed among applicants.
18. Can I cancel or withdraw my IPO application?
Yes, you can revise or withdraw your application during the bidding period only. After closing, cancellation is not allowed.
19. Can a minor apply for an IPO?
Yes, if the minor has a Demat account with a guardian. However, duplicate applications (guardian + minor separately) may be rejected.
20. How to choose the right IPO?
Before applying, check:
- Company fundamentals
- Financial growth
- Promoter background
- IPO valuation
- Purpose of fund raising
- OFS percentage
Avoid applying blindly based on hype.
21. What are the risks in IPO investing?
- No guarantee of allotment
- Listing below issue price
- Market volatility
- Company underperformance after listing
IPO investment involves market risk.
22. When does IPO allotment and listing happen?
- Allotment: Usually within 3–4 working days after closing.
- Listing: Within 6 working days after issue closure.
23. Can I sell IPO shares on listing day?
Yes. Retail, NII, and QIB investors can sell shares on listing day. Only anchor investors have a lock-in period.
24. What is the lock-in period?
- Anchor Investors: Partial 30 days + 90 days
- Retail & NII: No lock-in
25. How is IPO investment taxed?
If shares are sold within 12 months, gains are taxed as Short-Term Capital Gains (STCG).
If held for more than 12 months, gains are taxed as Long-Term Capital Gains (LTCG) as per prevailing tax laws.
Final Note
IPO investment can be profitable but also carries risks. Always study the company’s financials and risk factors before investing.
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