What Are IPOs? How Can You Invest in One?

 

What Are IPOs? How Can You Invest in One?

Every now and then, you hear the buzz — “XYZ company is launching its IPO!” 🚀
But what exactly is an IPO, and how can you as an investor take part in it?

Let’s break it down step by step.

1. What is an IPO?

IPO stands for Initial Public Offering.
It is the first time a private company offers its shares to the public through the stock market.

  • Before an IPO → the company is owned by founders, early investors, or venture capitalists.

  • After an IPO → anyone (like you and me) can buy its shares and become part-owners.

📌 Example:
When Zomato launched its IPO in 2021, it allowed the public to buy shares for the first time. Those who bought during the IPO became early investors in the company.

2. Why Do Companies Launch IPOs?

Companies go public (launch an IPO) mainly to:

  • Raise money for growth, expansion, or paying debts.

  • Increase credibility and brand recognition.

  • Allow early investors to sell part of their stake and make profits.

3. How Can You Invest in an IPO?

Here’s a simple step-by-step guide:

Step 1: Have a Demat & Trading Account

  • A Demat account is where your shares are stored digitally.

  • A Trading account is where you place buy/sell orders.
    (You can open both with brokers like Zerodha, Upstox, Groww, ICICI Direct, etc.)

Step 2: Check Upcoming IPOs

  • IPOs are announced in advance.

  • You can track them via your broker’s app or NSE/BSE websites.

Step 3: Apply for the IPO

  • When the IPO is open, you can apply through your broker’s platform or via UPI (like Google Pay/PhonePe).

  • You select the number of shares and the price range (called the “bid price”).

Step 4: Allotment Process

  • If demand is high (oversubscribed), you may or may not get shares.

  • Shares are allotted through a lottery system by the company and stock exchange.

Step 5: Listing on the Stock Exchange

  • Once allotted, shares are credited to your Demat account.

  • On the listing day, the stock begins trading on NSE/BSE.

  • You can either hold for the long term or sell on listing day (many investors do this if the listing price is higher than the IPO price).

4. Benefits of Investing in IPOs

✅ Chance to invest in a company early.
✅ Potential for high returns on listing day.
✅ Long-term wealth creation if the company performs well.

5. Risks of IPOs

⚠️ Not all IPOs do well after listing.
⚠️ Some may fall below the issue price.
⚠️ Hype doesn’t always mean long-term success.

Gowtham's Note:

  • IPO = Company’s first sale of shares to the public.

  • You need a Demat + Trading account to apply.

  • Shares are allotted via a lottery if oversubscribed.

  • IPOs can give great returns but also carry risks.

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