IPO FAQ — 32+ Questions Answered

An Initial Public Offering (IPO) is the process through which a private company offers its shares to the general public for the first time on a stock exchange. This allows the company to raise capital from public investors, and gives the public an opportunity to own a piece of the company. After the IPO, the company's shares are traded on stock exchanges like NSE and BSE.

You can apply for an IPO through three methods: (1) ASBA (Application Supported by Blocked Amount) via your bank's net banking — this is the most common method where funds are blocked in your bank until allotment; (2) Through your stockbroker's trading platform like Zerodha Kite, Upstox, or Angel One using UPI; (3) Through your broker's UPI-based IPO application. You need a valid PAN card, Demat account, and bank account to apply. Applications above ₹5 lakh must use ASBA; below ₹5 lakh can use UPI.

ASBA (Application Supported by Blocked Amount) is a mandatory mechanism for IPO applications above ₹5 lakh. Under ASBA, your application money is blocked (not debited) in your bank account until allotment is finalized. If allotment is successful, the exact amount is debited; otherwise, the block is released. This means your funds earn interest while the IPO is being processed.

These are the three investor categories in an IPO: (1) QIB (Qualified Institutional Buyers) — includes mutual funds, banks, FPIs, and insurance companies; they are typically allocated 50% of the issue; (2) NII (Non-Institutional Investors), also called HNI — includes individuals, companies, and trusts applying for more than ₹2 lakh; typically 15% of the issue; (3) RII (Retail Individual Investors) — individuals applying for ₹2 lakh or less; typically 35% of the issue.

Mainboard IPOs are for companies listing on the main segments of NSE and BSE and have a minimum post-issue paid-up capital of ₹10 crore. SME IPOs list on NSE Emerge (NSE SME) or BSE SME platform and are designed for smaller companies with paid-up capital between ₹1 crore and ₹25 crore. SME IPOs have higher lot sizes (often requiring ₹1-2 lakh investment), lower liquidity after listing, and are considered higher risk. Market makers are mandatory for SME IPOs to provide liquidity.

DRHP (Draft Red Herring Prospectus) is the first public document filed by a company with SEBI when it plans an IPO. It contains detailed information about the company's business, financials, management, risks, and proposed use of funds — but does not include the final issue price and dates. RHP (Red Herring Prospectus) is the final prospectus filed after SEBI approval, which includes the price band, lot size, and issue dates. Always read the RHP before investing.

The cut-off price is the final issue price determined after the book-building process. Retail investors and employees can bid at the cut-off price without specifying a number — this means they are willing to pay whatever price is finally determined within the price band. Bidding at cut-off is advisable for retail investors as it maximizes allotment chances.

Yes — you can sell your IPO shares on listing day itself. Many retail investors choose to sell on listing day to book listing gains. However, if you believe in the company long-term, holding beyond listing is also a valid strategy. Note that if you sell within 1 year of allotment, gains are taxed as short-term capital gains (STCG) at 15%. Selling after 1 year attracts LTCG at 10% above ₹1 lakh.

Retail Individual Investors (RII) can apply for a minimum of 1 lot (minimum bid lot as specified in the IPO) and a maximum of ₹2,00,000 worth of shares. Applications above ₹2 lakh fall under the HNI/NII category which has different allotment rules. The minimum investment is typically between ₹10,000 and ₹15,000 per lot for most IPOs.

Anchor investors are qualified institutional investors (QIBs) who are allotted shares one day before the IPO opens. This is done to build confidence in the issue. Anchor allocation is typically 60% of the QIB portion. Anchor investors have a 30-day lock-in period post listing. A strong anchor book (quality institutional investors) is considered a positive signal for retail investors.

The minimum investment in an IPO equals the issue price multiplied by the lot size. For mainboard IPOs, the minimum retail application is typically between ₹13,000 and ₹15,000. SEBI mandates that retail IPO lot sizes be calibrated so that the minimum application amount stays within this range. For SME IPOs, minimum investment is often ₹1–2 lakh due to larger lot sizes.

The listing price is determined by the stock exchange based on pre-opening session orders. On listing day, there is a 45-minute pre-open period (9:00 AM to 9:45 AM) where buyers and sellers place orders. The exchange calculates the price at which maximum shares can be traded — this becomes the listing price. After that, normal trading begins.

If an IPO is undersubscribed (total bids are less than the shares offered), the company may still proceed if it meets SEBI minimum requirements (90% subscription). If it fails to get 90% subscription, the IPO is withdrawn and all application amounts are refunded. Undersubscribed IPOs often see weak listing performance, though exceptions exist for quality companies in tough market conditions.

The price band is the range within which investors can bid for IPO shares. The lower end is the "floor price" and the upper end is the "cap price." Most investors bid at the cap price to maximize allotment chances. The final issue price (cut-off price) is determined by the company and investment banks after analyzing the bids received during the book-building process.

For retail investors there is no lock-in period — you can sell your IPO shares from the day of listing. However, promoters have a lock-in period of 18 months for 20% of post-IPO shareholding, and 6 months for the remaining. Pre-IPO investors typically have a 6-month lock-in. Anchor investors have a 30-day lock-in. These lock-in periods prevent large shareholders from immediately dumping shares post-listing.

Book building is the process by which an IPO price is determined through investor demand. Investment banks (book running lead managers) collect bids from institutional and retail investors at various prices within the price band. Based on the demand pattern, the company fixes the final issue price at or below the cap price. Most IPOs in India use the book building method.

SEBI introduced the T+6 listing timeline, where T is the IPO closure date. Under this framework: T+1 = basis of allotment finalized; T+2 = refunds initiated and shares credited to Demat; T+3 = shares available for trading (listing day). This significantly shortened the previous T+6 timeline, allowing investors to trade sooner and reducing the period of funds being locked.

Anchor investors are qualified institutional buyers (QIBs) who are allocated up to 60% of the QIB portion of an IPO on a discretionary basis, one day before the IPO opens for public subscription. Anchor investor participation signals institutional confidence in the IPO. Anchor investors are subject to a 30-day lock-in period on their allotted shares.

Bidding at "cut-off price" means you are willing to buy shares at whatever final price the company decides within the price band. SEBI mandates that retail investors (applying up to ₹2 lakh) must bid at the cut-off price. This is the recommended approach for retail investors as it ensures you don't miss out if the issue price is set higher than your specific bid price.

Both NSE Emerge and BSE SME are platforms for smaller companies to list their shares. NSE Emerge is the SME platform of National Stock Exchange, while BSE SME is Bombay Stock Exchange's equivalent. Companies typically choose one platform for listing. Both have similar listing criteria but some differences in fee structures. Shares listed on NSE Emerge can only be traded on NSE; BSE SME shares only on BSE.

IPO investing carries several unique risks: (1) Limited financial history — companies going public often have a short operational track record; (2) Overvaluation risk — IPOs can be priced aggressively; (3) Post-listing volatility — shares can fall sharply below the issue price after listing; (4) Lock-in for promoters — large insider selling after lock-in expiry can depress prices. Investing in IPOs should be based on fundamental analysis, not just GMP or listing gain expectations.

GMP (Grey Market Premium) is the premium price at which IPO shares are traded informally before the official listing date. It reflects the unofficial market's estimate of how much above (or below) the issue price the shares will list. For example, if an IPO has an issue price of ₹500 and a GMP of ₹100, the grey market expects listing around ₹600. GMP is not regulated and can be misleading — it should be used only as one of many indicators when making investment decisions.

Kostak (or Kostak Rate) is the price at which an IPO application is bought or sold in the grey market before allotment — regardless of whether the application gets allotted or not. For example, if the Kostak for an IPO is ₹2,000, an investor can sell their entire IPO application for ₹2,000 to a buyer, regardless of allotment outcome. The buyer takes on the allotment risk. Kostak trading is unregulated and carries significant risk.

"Subject to Sauda" (also called "Sub-To") is a grey market transaction where an investor sells their IPO allocation at a premium that is conditional on getting allotment. Unlike Kostak (where the seller gets paid regardless of allotment), in Subject to Sauda, the transaction only executes if the seller receives allotment. The buyer pays a premium per share only for the shares that are allotted.

GMP has moderate reliability — it directionally predicts listing gains correctly in about 60-70% of cases but the exact magnitude is often wrong. GMP can be manipulated by grey market operators, especially for smaller SME IPOs. A high GMP sometimes leads to profit-booking at listing resulting in the stock opening below GMP expectations. Use GMP as one signal among many — also consider subscription data, company fundamentals, sector sentiment, and overall market conditions.

IPO allotment is done by the registrar appointed by the company. For oversubscribed IPOs in the retail category (RII), a computerized lottery is used — each applicant applying for the minimum lot has an equal chance of getting one lot. Applications for multiple lots don't increase your probability in the retail category. For the NII (HNI) category, allotment is proportional. QIB allotment is discretionary by the company.

You can check your IPO allotment status through: (1) The registrar's website (KFin Technologies, Link Intime, Bigshare, etc.) — enter your PAN or application number; (2) BSE IPO portal at bseindia.com; (3) Your broker's platform (Zerodha Console, Upstox, etc.); (4) NSDL or CDSL portal with your Demat account details. Allotment status is typically available 1-2 days after the subscription closes.

For retail investors, submitting multiple applications from different family members' demat accounts is a common strategy — each eligible family member (spouse, parents, adult children) can apply separately, each having an independent chance of getting one lot. However, only one application per PAN is allowed. Never submit multiple applications from the same PAN — this leads to cancellation of all applications and possible blacklisting. Using multiple UPI IDs linked to the same PAN is also not allowed.

For retail investors (RII category), allotment is done by lottery when the IPO is oversubscribed. SEBI mandates that at least one lot must be given to each applicant if possible. If total applicants are less than available lots, everyone gets at least one lot. If oversubscribed more than the number of lots available in retail category, a computerized lottery picks winners — each applicant gets a maximum of one lot regardless of how many lots they applied for.

After allotment is confirmed (usually T+6 from issue close), shares are credited to your Demat account 1-2 days before listing. The refund for unallotted amounts is processed simultaneously. With the T+3 listing timeline mandated by SEBI, the entire process from application close to listing takes about 6 working days.

If your IPO application does not receive allotment, your application money (which was blocked via ASBA) is unblocked and becomes available in your bank account within 1-2 working days after allotment finalization. For UPI-based applications, the UPI mandate is automatically revoked. No action is required from your side.

Yes, retail investors can apply for up to ₹2 lakh worth of shares (multiple lots). However, whether you apply for 1 lot or the maximum retail lot, your probability of getting allotment in an oversubscribed IPO remains the same in the retail category — the lottery is based on unique applications, not lot size. Applying for more lots does NOT increase your chances of allotment.