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If you follow finance news or stock market updates, you may have heard the term IPO quite often. Many companies announce their IPO, and people start applying with the hope of getting good returns. But if you are new to the market, you might wonder — What exactly is an IPO, why do companies launch it, and how can you invest in it?

Let’s understand everything in simple language.

Meaning of IPO

IPO stands for Initial Public Offering. It is the process in which a private company offers its shares to the general public for the very first time. Before IPO, the shares of the company are owned mostly by:

• Founders or Promoters

• Early-stage Investors

• Private Equity Firms

• Venture Capitalists

But once the IPO is launched, any person with a demat account can invest in the company and become a shareholder.

So, in short:

➡️ Before IPO – Company is private.
➡️ After IPO – Company becomes public and is listed on the stock exchange.

Why Do Companies Launch an IPO?

Companies come up with an IPO for several reasons. Here are some common ones:

1. To Raise Funds

A company needs money to expand its business, open new branches, launch new products, upgrade facilities, or enter new markets. IPO helps raise this capital from public investors.

2. To Repay Existing Loans

Some companies have loans or financial burdens. Raising funds from IPO helps them reduce debt and improve their financial stability.

3. To Increase Brand Value

Once a company is listed on the stock exchange, it gains market trust, publicity, and recognition.

4. Exit Option for Early Investors

People who invested early in the private company can sell some of their shares during IPO and book profits.

How Does an IPO Work? (Simple Step-by-Step)

Here is a basic explanation of the IPO process:

1. Company decides to go public and hires investment bankers.

2. A Draft Red Herring Prospectus (DRHP) is prepared which contains company details, financials, risks, etc.

3. The price band is decided. For example, ₹100–₹110 per share.

4. IPO opens for the public for 3 days.

5. Investors apply through their demat & UPI.

6. After IPO closes, shares are allotted based on demand.

7. Then the shares get listed on NSE and BSE.

8. Trading begins from the listing day.

If more people apply than the number of shares available, the IPO is said to be oversubscribed.

Who Can Invest in an IPO?

IPO investments are divided into 3 main categories:

Each category has a reserved quota.

How to Apply for an IPO?

Today, applying for an IPO is very simple. You need:

• Demat Account

• Trading Account

• UPI ID (Google Pay / PhonePe / Paytm etc.)

Steps:

1. Open your broker app (Zerodha, Groww, Upstox, Angel One, etc.)

2. Go to the IPO section.

3. Select the IPO you want to apply.

4. Enter the lot size.

5. Approve the UPI request in your UPI app.

That’s it! Your IPO application is submitted.

Benefits of Investing in IPOs

1. Chance of Listing Gains

Some IPOs list at a price higher than the issue price, giving investors quick profit.

2. Early Entry into Growing Companies

If the company grows well over time, the investor can benefit long-term.

3. Transparent Information

Before IPO, companies are required to share detailed financial and business information in the prospectus. This helps investors analyze the company better.

Risks in IPO Investment

Even though IPOs look attractive, they also involve risks:

• The company may not perform well after listing.

• The share price can fall below the issue price.

• Market conditions can affect stock performance.

• Hype around popular IPOs can mislead investors.

That’s why investing without research can be risky.

Do’s Before Investing in an IPO

To make a smarter decision, always check:

A little research can save you from wrong investment decisions.

Should You Apply for Every IPO?

No. Not every IPO gives profit. Some IPOs list at a discount and investors face losses.
So don’t follow crowd or hype blindly.

Instead:

• Read IPO reviews from experts

• Compare valuation with other companies in the same industry

• Understand the company’s future plans

If you think the company is strong, stable, and has a good long-term growth story, then investing may be a smart choice.

Conclusion

An IPO is a great way for individuals to participate in a company's growth journey from the early stage. It gives companies the opportunity to raise funds and gives investors a chance to invest in promising businesses.

However, IPO investment should be done with awareness and research, not only for quick profits. If done wisely, IPOs can help build long-term wealth and provide meaningful returns.

Start slow, learn step by step, and invest wisely.