How Does an IPO Work?
An IPO is when a private company sells its shares to the public for the first time. Here is the complete process — from application to listing — explained simply.
Key takeaways
What is an IPO?
When a private company wants to raise money from the public for the first time, it offers its shares through an IPO — Initial Public Offering. It is the first time the company's shares become available to regular investors like you and me. Before the IPO, only founders, early investors, and venture capital firms could own a piece of the company.
Why do companies do an IPO?
To raise large amounts of money for expansion — building factories, entering new markets, paying off debt, or funding research. In return, the company gives up a portion of its ownership to public shareholders. Zomato, for example, launched its IPO in July 2021 at ₹76 per share, raising over ₹9,375 crore. Anyone who applied during the IPO window could become a shareholder.
How does the IPO process work?
First, the company files detailed documents with SEBI explaining its business, financials, and how it plans to use the money raised. SEBI reviews and approves this. The company then announces a price band — a range within which you can bid for shares, for example ₹70 to ₹76. During the subscription window, which is usually 3 days, you apply through your broker or bank UPI for a certain number of shares at your chosen price within the band.
What happens after you apply?
If the IPO is oversubscribed — meaning more people applied than shares available — allotment is done through a lottery system for retail investors. If you are allotted shares, they are credited to your Demat account. If not, your application money is refunded within a few days. On listing day, the stock begins trading on the exchange. The listing price depends on demand — it can be above the IPO price (a listing gain) or below (a listing loss).
Should you apply to every IPO?
Not necessarily. Many IPOs are heavily marketed and overhyped. A strong business at a fair price is worth considering — but hype alone is not a reason to invest. Before applying, check the company's revenue growth, profit history, debt levels, and the valuation being asked versus similar listed companies. If you cannot evaluate these, it is perfectly fine to skip an IPO and invest in mutual funds instead.