What Is an IPO, and Should You Invest in One?

May 22, 2025

Investing in the stock market is no longer an intimidating idea only for professionals. Nowadays, even newbie investors are discovering new ways to make money—and one word that keeps coming up is "IPO." If you have heard people mention IPOs and are curious about the buzz, this guide is for you.

What Is an IPO?

IPO stands for Initial Public Offering. This is when a private company has chosen to sell shares to the public for the first time through the stock market. You can think of a firm as needing to raise capital to expand, and it has the option of either borrowing money or allowing individuals like you and me to fund it by selling ownership through shares. The process of selling the company's shares to the public for the first time is the IPO.

How IPO Works?

Assume a growing company wants to raise capital. First, they will approach the market regulator (the SEBI in India) and request permission to conduct an initial public offering (IPO). Next, they will determine how many shares they will sell and at what price. Once approved, the company will register and release a document called a prospectus, which includes the details of how the money will be used, the company's financial health, and the potential risks. After that, the IPO is open for investors for a few days. This period is known as the IPO subscription process, where investors can apply for shares.

How to Invest in an IPO?

You don't need a large amount of money or be a finance pro to take part in an IPO. You simply need a demat account, a trading account, and a bank account with UPI or ASBA (Application Supported by Blocked Amount) facility.

Here's a simplified version of how to invest in an IPO:

Login to your broker's app or portal.
Look for ongoing IPOs.
Read the company details carefully.
Enter how many shares you want to apply for.
Submit the application using your UPI ID or via ASBA.

Once done, you wait for the IPO allotment process to find out if you've received any shares.

IPO Subscription Process – What Does It Mean?

The IPO subscription process refers to the time window when investors apply for the IPO. It usually lasts for three working days. During this time, people submit bids to buy shares. If an IPO is very popular, it can be "oversubscribed," meaning more people have applied than the number of shares available.

For instance, if an IPO offers one crore shares and receives bids for five crore shares, it's considered 5 times subscribed. In such cases, not everyone gets what they apply for—shares are distributed based on certain rules.

IPO Allotment Process – What Happens After You Apply?

After the subscription window closes, the IPO allotment process begins. This is where the company, along with stock exchanges and registrars, decides who gets how many shares. If it's oversubscribed, allotment may be done via a lucky draw system for retail investors.

Once shares are allotted, you'll get a confirmation in your demat account. If you don't get any shares, your money is refunded automatically.

Direct Listing vs IPO – What's the Difference?

Some companies might skip the traditional IPO route and go for a direct listing. In direct listing vs IPO, the key difference is that in a direct listing, the company does not raise new funds. Instead, existing shareholders sell their shares directly on the stock exchange.

With a regular IPO, the company issues fresh shares to raise capital. Direct listings are quicker but not as common in India, especially for companies looking to expand or fund big projects.

Should You Invest in an IPO?

This is the big question. While IPOs can offer a chance to be part of a company's growth story from the start, they also come with risks. Some IPOs deliver big returns on listing day, while others may underperform.

Here are a few things to keep in mind:

Always read the company's financials in the IPO prospectus.
Don't invest just because of hype or social media buzz.
Consider your financial goals—IPOs can be risky for short-term gains.

That said, for long-term investors who do their homework, IPOs can be an interesting addition to their investment portfolio.

Conclusion

Understanding IPO is the first step toward becoming a smarter investor. If you're considering investing in IPOs, Indiabulls Securities Limited offers a user-friendly platform with all the tools you need to apply, track, and manage your investments easily. Start your IPO journey today with confidence and the right support by your side.

FAQs

Can I apply for multiple IPOs at the same time?

Yes, you can apply for multiple IPOs, provided you have sufficient funds in your bank account and follow the ASBA process.

What happens if I don't get any shares in the IPO allotment?

Your money will be refunded to your bank account automatically, usually within a few days.

Is it safe to invest in IPOs?

It depends on the company and your risk appetite. While some IPOs perform well, others may fall below the issue price. Always research before applying.

Can I sell IPO shares immediately after listing?

Yes, you can sell them on the listing day itself, but it's wise to assess the market condition before doing so.

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