An IPO (Initial Public Offering) is the process by which a private company becomes a public company by offering its shares to the general public for the first time.
🔹 What is IPO in Simple Words?
👉 IPO = Company selling shares to public for the first time
- Before IPO → Company is private
- After IPO → Company becomes publicly listed on stock exchanges like
National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE)
🔹 Why Do Companies Launch an IPO?
Companies issue IPOs to raise money for:
- Business expansion
- Paying off debts
- New projects or investments
- Increasing brand visibility
👉 Example: Companies like Zomato and LIC raised huge funds through IPOs.
🔹 How IPO Works (Step-by-Step)
- 📄 Company prepares IPO (with help of investment banks)
- 📝 Files documents with Securities and Exchange Board of India (SEBI)
- 💰 Decides price band (e.g., ₹100–₹120 per share)
- 🧑💻 Investors apply for shares (through broker/app)
- 🎯 Shares are allotted to investors
- 📊 Company gets listed on NSE/BSE
- 🔄 Shares start trading in the secondary market
🔹 Types of IPO
1. Fixed Price Issue
- Price is decided in advance
- Investors know exact price before applying
2. Book Building Issue
- Price range (band) is given
- Final price decided based on demand
🔹 Important Terms
- Lot Size → Minimum shares you must apply for
- Listing Price → Price at which shares start trading
- Listing Gain → Profit if price rises on listing day
🔹 Example (Easy Understanding)
Suppose a company issues shares at ₹100 in IPO.
- You apply and get shares
- On listing day, price becomes ₹150
👉 Your profit = ₹50 per share (Listing Gain)
🧠 Key Points
- IPO is part of the Primary Market
- It allows public to become owners (shareholders)
- High returns possible, but also risk