IPO
Also called: initial public offering
Initial public offering: the first time a company sells shares to the public and lists them on a stock exchange.
Before an IPO, a company belongs to its founders and early investors. In the IPO it sells shares to the public. New shares raise money for the company; an “offer for sale” lets existing owners cash out, and that money goes to them. The offer document, the red herring prospectus, says how much is which.
Retail investors apply through their broker or bank using UPI or ASBA, which blocks the money in your account instead of taking it. The retail category covers applications up to 2 lakh rupees. When an issue is oversubscribed, shares go to applicants by lottery and everyone else’s money is released. The shares list on the exchange about three working days after the issue closes.
Example
An IPO is priced at 300 to 315 rupees, with a minimum lot of 47 shares. One lot at the top of the band blocks 14,805 rupees. If the retail portion is subscribed 20 times over, most applicants receive nothing.
Watch out
A big first-day jump makes headlines, but the sellers chose the timing and the price. Read why the company is raising money before you apply.
Learn it properly in
Chapter 1.1: What a share actually is, and what you own when you buy one