IPO Full Form

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Primary markets have created a lucrative investment path for investors. As a result, the stock market is witnessing a rising number of retail participants in IPOs.

What is the full form of IPO?

The IPO full form in the share market is Initial Public Offering. An IPO is the first issue of a company’s equity shares offered to the general public to raise funds. It simply means the company dilutes a part of its ownership to raise the required money. These raised funds are used for various purposes in the company, like growth prospects, debt repayment, etc.

Is the IPO full form in the stock market and the banking sector the same?

Yes, the IPO full form is the same - Initial Public Offering - in both cases. An investment bank provides underwriting services to the IPO issuing companies and is an intermediary between the company and IPO investors. It buys all or much of the IPO shares from the company and sells them in the market.

What are the primary and the secondary stock market?

The primary market is a platform used by organisations to issue their shares to the public through an IPO. It is the first time the shares of that company are issued to the public. When individuals invest in IPO shares, they purchase them directly from the company in the primary market and receive them in their demat account.

The secondary market is where those issued securities/shares are listed on stock exchanges. After completing the IPO process, the shares are traded among individuals on stock exchanges using their trading accounts.

Who is eligible to apply for an IPO?

There are defined categories for IPO investors:

  • Qualified Institutional Buyers (QIB)
  • Non-Institutional Bidders (NII)
  • Retail Individual Investors (RII)
  • Anchor Investors

Eligibility Criteria for retail investors are as follows:

  • Retail investors must be 18+ years old to invest in IPOs.
  • A Permanent Account Number (PAN) is a must for stock investments.
  • You should have a demat account with a SEBI-registered stockbroker in India to apply online.
  • You should have a demat account linked with your bank account for seamless transfer and withdrawal of funds

Thus, these features of trading accounts enable traders to benefit from stock market trading.

Is a trading account required for IPO investing?

Yes, a trading account is required as you would want to sell the shares that were allotted to you during the IPO. Without a trading account you will not be able to sell and book profits. If investors want to hold the IPO shares for the long term, it is easy to hold them securely in their demat accounts. They can sell them using their trading accounts if they want to book listing gains.

Differentiate a Fixed Price and a Book Built IPO

Fixed Price IPO:

The share price is already determined before the company goes public and is mentioned in the offer documents submitted to the SEBI. Applicants pay the share price in full when submitting an IPO application.

Book Building IPO:

The company offers a bidding range to investors. Investors need to bid on the shares, and the company decides the final price later. These bids will be used to finalise the share price, and the price of an issue is discovered on the basis of demand in the market. The lowest price band is called the Floor Price of the IPO, and the upper price band is the Cap Price.

As an investor in an IPO, how do I know which price to apply at?

If an IPO issue is expected to be oversubscribed with an overwhelming response and the company's valuations look decent, you can bid at the upper limit of the price range.

Who makes decisions on the size of the IPO issue and the book-building price band?

An investment bank helping the company in the IPO process drafts the company prospectus, including the issue size and price range. On the other hand, Registrars are the SEBI-registered entities to finalise the basis of allotment and carry out the allotment process following the company's Red Herring Prospectus.

Do the BRLM and the Registrar acts for the same purpose in an IPO?

Book Running Lead Managers (BRLM), also called merchant bankers, are involved in the complete IPO process. They are a key member during the book-building process. They decide the IPO cut-off price based on the market response to the issue.

For how many days is the IPO kept open?

Generally, an IPO issue is kept open for at least three working days and a maximum of ten working days. Individuals can bid for IPO shares within the decided price band during this subscription period.

What is the process after the IPO is closed?

After the IPO closes, the company needs to submit the final equity shares to be allotted to applicants and the final issue price. Then shares are allotted to IPO applicants based on the price quoted in their application forms.

On what basis are the shares allotted?

The IPO share allotment depends on the market response to it.

  • If the total number of bids is less than the total number of shares offered, it is an undersubscribed IPO. The applicants will receive the same number of shares they bid for.
  • If the total number of shares is more than the total number offered, it is an oversubscribed IPO. The applicants will receive less than they bid for. Following the Basis of Allotment, if the allotment ratio, suppose, is 1:3, then out of every three applicants, only one will receive one lot of shares based on the lottery system.

My funds will be locked in for a fixed period once I apply for the IPO - is it correct?

When you apply for an IPO, the amount you paid is blocked in your account till the IPO allotment is finalised by the company. If you do not get shares, the same amount will be unblocked, and you will also be notified of the same.

How do IPO shares get listed at a premium / discount to the issue price?

If a stock gets a good response from all four categories of the IPO investors, retail, institutional, QIB, and anchor, the IPO issue will be oversubscribed and get listed on premium. An under-subscribed IPO during unfavourable market conditions due to global and domestic triggers gets listed on a discount.

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FAQs

Can I open multiple demat accounts?

Answer Field

Yes, you can open multiple demat accounts but only under the below conditions:

  • You can open only one demat account per DP using the same PAN card.
  • You can open multiple demat accounts with different DPs using the same PAN card.

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