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Big IPO coming? How an IPO actually works
With mega listings like Reliance's Jio Platforms in the news, here's what happens when a company goes public, and what to check before you apply.
An IPO, or initial public offering, is the first time a company sells its shares to the public. Part of the ownership moves from the founders and early investors to anyone who bids through a broker.
Why companies do it
- Fresh issueNew shares are created and the money goes to the company, often for expansion or paying down debt.
- Offer for saleExisting owners sell some of their shares. That money goes to them, not the company.
- A price tagListing gives the business a public market value that changes every trading day.
Three things to read before you bid
1. The price band and valuation. Compare the valuation it implies with listed rivals.
2. Fresh issue vs offer for sale. A big offer for sale means owners are cashing out.
3. The risk factors. Every IPO files a draft red herring prospectus (DRHP) with SEBI. Read the debt, litigation and risk sections.
You bid through your broker app using UPI. Big IPOs are often oversubscribed, so shares are allotted by lottery for retail investors and allotment isn't guaranteed.
Educational content only. Not investment advice. Spotted an error? Tell us.
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