How to Invest in an IPO for the First Time

What Is an IPO?

IPO Definition and Purpose

An IPO (Initial Public Offering) is a financial event where a privately held company offers its shares to the public for the first time and lists those shares on a stock exchange. 

Companies pursue IPOs primarily to:

• Raise capital for expansion, debt reduction, or R&D

• Gain broader investor base and public visibility

• Allow early investors and founders to monetise holdings

• Meet regulatory and disclosure standards required for public companies

When a company launches an IPO, it must publish a detailed prospectus or Red Herring Prospectus (RHP) that outlines its business model, financial performance, growth plans, risk factors, and how the proceeds from the IPO will be used. 

The Role of Underwriters and SEBI

Before you see an IPO on your banking app, the company appoints Investment Bankers (also called Lead Managers). These experts handle the valuation and legalities. They help draft the Draft Red Herring Prospectus (DRHP), which is submitted to the Securities and Exchange Board of India (SEBI). SEBI reviews this document to ensure all material facts—financials, risks, and promoter history—are disclosed transparently.

The Purpose of the Capital

A critical part of your research should be identifying why the company wants your money. Generally, IPOs consist of:

• Fresh Issue: New shares are created. The money goes directly to the company for growth or debt repayment.

• Offer for Sale (OFS): Existing shareholders (like founders or PE firms) sell their stakes. This money goes to the sellers, not the company's coffers.

Why Companies Go Public

Going public through an IPO transforms a business in several impactful ways:

• It unlocks access to large pools of capital, enabling rapid growth or scaling into new markets.

• Publicly listed companies typically enjoy higher brand recognition.

• Share liquidity increases — existing shareholders can sell shares in secondary markets post-listing.

• It sets a market-based valuation for the company.

However, IPOs also bring increased regulatory scrutiny and the obligation to disclose financials regularly, which requires strong governance structures.

Eligibility: Who Can Apply for an IPO in India

Before investing in an IPO, you must meet certain eligibility criteria:

Investor Eligibility

• You must be an Indian citizen or hold valid Overseas Citizenship of India (OCI) status. 

• You must have a valid PAN card for identity and tax reporting. 

• You must have enough funds to cover your bid amount — which remains blocked until allotment. 

Account Requirements

• A Demat account (to hold shares electronically) is mandatory. 

• A bank account linked to ASBA (Application Supported by Blocked Amount) or UPI (Unified Payments Interface) is needed to apply. 

• A trading account is necessary if you plan to sell shares post-listing.

Also Read: How to Find Your Target Audience and Boost Business Growth

Step-by-Step IPO Application Process in India

Here’s the complete journey from IPO announcement to listing:

1. IPO Registration and Prospectus Filing (Company Side)

Companies start by appointing merchant bankers and then preparing a Draft Red Herring Prospectus (DRHP), filed with SEBI for approval. This document contains financials, risk disclosures, and business plans. Once SEBI reviews and approves, the final prospectus with price bands is released. 

2. Marketing and Roadshows

Before public subscription opens, the company and its lead managers conduct roadshows to attract institutional investors and create awareness about the IPO offer. 

3. Bidding Window Opens

The IPO is open for bidding, typically for 3 to 5 working days. Investors can place bids within the specified price band (e.g., ₹95–₹100/share). 

Retail vs Other Categories

• Retail Individual Investors (RIIs) — usually up to ₹2 lakh investment. 

• Non-Institutional Investors (NIIs) — typically high net worth individuals. 

• Qualified Institutional Buyers (QIBs) — institutional investors like mutual funds. 

SEBI generally reserves about 35% of shares for retail investors, though recent proposals suggest flexibility that could reduce this to 25% in very large IPOs to balance demand — under consultation.

4. Application Supported by Blocked Amount (ASBA)

India uses the ASBA process, where your bid amount is blocked in your bank account but not debited until shares are allotted. This protects your funds and simplifies refund processing if you are not allotted shares. 

How ASBA Works

• When you apply online or offline, the amount is frozen (blocked) until allotment results.

• If shares are allotted, the required funds are deducted.

• If not, the blocked amount is released automatically. 

5. Placing Your Bid Online (UPI/Banking/Trading Platforms)

Most investors apply through:

• Net banking (ASBA)

• Broker platforms (Zerodha, Groww, Upstox, Angel One)

• UPI-linked IPO applications

You enter details such as PAN, Demat account, number of lots, price band, and authorize payment via UPI or ASBA. 

6. Allotment and Refunds

After bidding closes:

• The registrar computes demand and allocates shares.

• If oversubscribed in retail category, a lottery or proportionate allotment is used. 

• Shares are credited to Demat accounts (usually within three working days).

• Refunds for unallotted bids are processed electronically.

7. Listing on Stock Exchange

Once shares are credited, the IPO gets listed on exchanges like NSE or BSE. Listing day performance — whether the share opens above issue price — often determines early sentiment among investors.

IPO Fees, Timelines & Allotment

• Timeline: IPO open period — usually 3–5 days; allotment — within about a week; listing — within days post-allotment.

• Fees: Brokerage platforms may charge nominal fees to apply through their apps.

Tips for Beginners Before Applying

Understand the Prospectus

Read the RHP carefully — business model, financials, risk factors, and use of IPO funds are critical.

Avoid Price Band Guessing

Apply at cut-off price unless you have strong reason to bid inside the range — cut-off gives you flexibility.

UPI/ASBA Authorization

Ensure your UPI is active and linked properly. Mistakes in authorization can lead to application rejection. 

Don’t Apply Multiple Times

SEBI permits one application per PAN per category — duplicates can lead to rejection. 

Check Allotment Status

Use registrar or broker sites/apps to track.

Pros and Cons of Investing in IPOs

Advantages

• Potential for listing gains if demand is high.

• Early access to promising companies.

• Long-term capital growth opportunities.

Risks

• IPOs can be overpriced and may list lower than issue price.

• New companies may lack trading history.

• Market volatility can affect short-term performance.

2025 Case Study: Lessons from Tata Capital & LG Electronics

The record-breaking year of 2025 provided vital lessons for 2026 investors.

• Tata Capital (₹15,512 Cr): As the largest IPO of 2025, it saw massive subscription but a muted listing gain of only 1%. Lesson: Size doesn't guarantee listing pops; often, mega-IPOs are priced at full value, leaving little room for immediate gains.
• Meesho & LG Electronics: These issues saw high retail participation because of brand familiarity. Lesson: Familiarity creates "subscription pressure," which can lead to a lottery-style allotment where your chances are slim.

10. Common Pitfalls and How to Avoid Them

• Chasing GMP: Grey Market Premium is speculative. Many IPOs with high GMP in 2025 crashed on listing day due to sudden global market shifts.

• Borrowing to Invest: "IPO Financing" is risky. If the stock lists at a discount, you lose your capital and still owe the interest on the loan.

• Ignoring the Exit Strategy: Decide before the listing: Are you here for the 20% listing gain, or are you holding for 5 years? Emotional decisions at 10:00 AM on listing day usually lead to losses.

Conclusion

An IPO is not just a buzzword — it’s a structured, regulated method for companies to raise public capital and for investors to participate in the growth of emerging businesses. In India, thanks to SEBI’s reforms and processes like ASBA and UPI payments, applying for an IPO has become accessible even for beginners.

Understanding eligibility, the application process, allotment mechanisms, and investor quotas ensures that you participate wisely and avoid common mistakes. Whether you aim for long-term wealth creation or short-term listing gains, learning the IPO process equips you with a foundation to navigate India’s lively primary market with confidence.