How does an IPO work and how can you apply for an IPO in India?

Authored by
Team Espresso
December 27 2022
5 min read

Initial public offering (IPO) is when an organization goes public – for the first time, its stocks are being offered to the general public. The IPO refers to the primary market introduction of a company's shares for the first time. Both regular and institutional investors can purchase these shares (individuals). 

A reverse merger is a process through which a privately held firm becomes publicly traded. After an initial public offering (IPO), a company's stock is listed on a stock exchange and becomes freely tradeable on the secondary market. The company can expand its activities using the funds raised from the IPO.

How does IPO work?

A firm is private until its initial public offering (IPO). Pre-IPO private companies typically have a small number of shareholders, including the company's founders, friends and family, and a few professional investors.

An initial public offering (IPO) is a significant milestone for any company since it opens new avenues for financial support. To put it another way, this boosts the firm's expansion potential. Better terms when applying for loans may be possible due to the company's improved openness and the credibility gained from publicly having its shares listed.

A firm will announce its intention to go public once it achieves a size and level of development where it can handle the rigors of SEBI laws and the rewards and duties to public shareholders.

This growth phase often occurs when a firm has achieved a private valuation of around $1 billion (also referred to as "unicorn status"). However, private companies at a wide range of valuations with solid fundamentals and demonstrated profitability potential may also be able to go public through an IPO provided they can meet the market's competitive standards and other listing requirements.

How to apply for IPO in India?

Now that you know the meaning of an IPO, it's time to learn about how to apply IPO online. Using a financial institution to apply for an IPO (offline):

● Stop by the bank's location that facilitates IPO investments.

● Provide all requested information on the Application Supported by Blocked Amounts (ASBA) application form, including your bank account number, PAN number, and Demat information. Send in your application and get an acknowledgement slip in return. You can check your ASBA standing using the number on the acknowledgement sheet.

● Follow this by filling out an application to purchase shares in the IPO of your choosing and specifying the number of shares you wish to purchase and the minimum acceptable price per share. Furthermore, make sure your associated bank account has sufficient cash.

● Your bank will hold the application fee in escrow until your chosen stock exchanges have received your IPO application.

Here is how to apply for IPO online:

● Please enter your username and password to access your online banking.

● To submit an IPO or Rights Issue request, select the Requests tab on the left and then scroll down to the appropriate choice.

● A real-time feed of IPOs and rights issues would be displayed on the screen. If you're interested in applying for the IPO, click the "Apply" button.

● In the following screen, you'll be asked to provide details about yourself, like your birthday, the number of shares you wish to bid on, the price per share you're willing to pay, and so on.

● You cannot change pre-filled information such as your PAN card number, bank account number, nationality, etc. The Consolidated Account Statement contains the data you're looking for in the Depository Details section. 

● The last steps are to confirm the amount to be held, agree to the necessary terms and circumstances, and submit the IPO application.

Types of IPO

Fixed Price Initial Public Offering: This method involves offering the IPO shares to the public at a predetermined price. The value of a corporation is often determined by adding up all of its assets, subtracting all of its debts, and looking at its cash flow as a whole. A lack of interest in the IPO will not affect its pricing. After the IPO issue has closed, the actual demand for that IPO can be determined.

Book Building Initial Public Offering: The IPO price is set during the book-building phase. There is a pricing range available rather than a single, fixed price. The price range is established after considering the company's finances, the results of the roadshows, and the current market situation. The "floor price" refers to the lowest possible price, while the "cap price" refers to the maximum possible price.

How to invest in IPOs?

To file an IPO investment application, you must have the following:

Demat Account

• Bank Account

Trading Account

You can submit an application through the online ASBA service on your bank's website, as mentioned previously.


Now that you understand what an IPO is, you should seamlessly be able to apply for one. However, conduct thorough research on the company you will invest in. Read news reports, talk to analysts, and read reports to understand the company’s risks and accordingly invest. 


Q. What does IPO stand for?

IPO stands for initial public offering –an event in which a private company sells its shares to the general public for the first time. 

Q. Would it be wise to put money into initial public offerings?

Investing in initial public offerings (IPOs) can yield substantial returns when done correctly. To participate in an initial public offering (IPO), you must open a Demat account and place your bid for shares on the IPO using the bank's website.

Q. What happens if an IPO fails?

A failed initial public offering (IPO) does not inevitably spell the end of a company. The organization may revise its strategy or goals to discover a way to turn a profit. On the other hand, the company might fail and disappear altogether if things become bad enough.

Q. Are shares available for sale right away once an IPO is launched?

Usually, such is the case. On the day of the initial public offering (IPO), investors who purchase shares in the open market have complete freedom to buy and sell their holdings as they see fit.

Stop-loss orders are instructions to purchase or sell a security at market price whenever a specified price, or "stop price," is reached.


To know your allotment status, you need details like Permanent Account Number (PAN), name, address, email address, and mobile number before bidding on a certain number of shares.