An Initial Public Offering (IPO) is when a company offers its shares to the public for the first time, after which the shares are listed on a stock exchange. Applying has become largely digital, but understanding each step helps you avoid common mistakes and set realistic expectations.
Start with the offer document
Before an IPO opens, the company files a Red Herring Prospectus (RHP). It describes the business, its financials, how the money raised will be used, who is selling shares, and — importantly — the risk factors. It is long, but the summary, the "Objects of the Issue" and the risk factors sections are worth reading before you apply. An IPO being popular or heavily discussed is not a substitute for understanding the business.
Price band and cut-off price
Most IPOs in India use the book-building method. Instead of a single price, the company announces a price band — a lower and an upper price. Investors bid within that band. Once bidding closes, the final issue price is discovered based on demand.
Retail investors can tick the "cut-off" option, which means you agree to buy at whatever final price is set within the band. Your bank blocks the amount at the upper end of the band, so that your bid stays valid wherever the price is fixed.
Lot size
You cannot apply for any number of shares you like. Bids are made in multiples of a lot (also called the market lot or minimum bid quantity), which the company specifies. Your application value is the lot size multiplied by the price and the number of lots. Retail individual investors can apply up to the maximum amount SEBI permits for that category; amounts above it fall into a different investor category.
ASBA and UPI: how your money is handled
Under ASBA (Application Supported by Blocked Amount), the application money is not debited when you apply. It is only blocked in your bank account. You can apply through your bank's net banking (ASBA), or through a broker or investment platform using a UPI mandate:
- You place the bid with your PAN, demat account details and UPI ID.
- You receive a mandate request in your UPI app, which you must approve before the cut-off time on the closing day.
- The amount stays blocked until allotment is finalised.
A common reason for rejected applications is a mandate that was never approved, or a mismatch between the PAN on the application and the demat account.
How allotment is decided
If an issue is oversubscribed, there are not enough shares for everyone. For retail investors, the regulations aim to give as many applicants as possible at least the minimum lot, so allotment is typically done by a computerised lottery. This means applying for more lots usually does not improve your chances much in a heavily oversubscribed issue — and multiple applications under the same PAN are rejected.
After the basis of allotment is finalised, shares are credited to your demat account if you are allotted, and the blocked amount is released if you are not, within the timelines SEBI prescribes. You can check your status on the registrar's website or the exchange's website.
Listing day and beyond
The shares then begin trading on the exchange. The listing price can be higher or lower than the issue price, and early trading is often volatile. An IPO is an equity investment like any other: what matters over time is the quality of the business and the price you paid relative to it.
A quick checklist
- Have I read the business overview, objects of the issue and risk factors?
- Do I understand the valuation compared with listed peers?
- Do my PAN, demat account and bank details match?
- Will I approve the UPI mandate before the deadline?
- Does this investment fit my overall asset allocation, whether or not I get an allotment?