As the name suggests, an Initial Public Offering (IPO) is the process by which companies raise funds from the market. Businesses require funds for a variety of reasons. They could be requiring funds for expansion of their capacity, they could be looking at diversification into new business lines, they could be looking at expanding their presence across India and abroad or they may even be looking to repay their high cost loans. All these funding requirements can be met through an IPO. As investors what you need to understand is how to apply for IPO and, more importantly, how to buy IPO online.
The term IPO is actually a generic term that encompasses a variety of sub-items. For example, if the company is raising funds from the IPO market for the first time and getting the stock listed, then it is a new offer. The new offer leads to a listing and to expansion of the capital base of the company. Then there are Follow-on offers wherein the company is already listed but is looking at the IPO market for raising additional funds. Such companies are already listed on the exchanges and the IPO is just a means for raising additional funds for their plans. Finally, there is something called an offer-for-sale where the existing promoters and anchor investors hive off part of their holdings through an IPO. Most of the disinvestments undertaken by the government are in the form of offer for sale. In an OFS, the share capital of the company does not increase but it is only the ownership pattern that changes. An OFS is often used by companies to also list the company in the bourses. So, how to invest in IPO in India and how to subscribe IPOs online?
Technically speaking, any adult who is competent to enter into a legal contract is eligible to apply in the IPO of a company. Of course, it is essential that you have a PAN card issued by the Income Tax department and you also have a valid demat account. Remember, having a trading account is not necessary in case of IPOs, a demat account alone is sufficient. However, if you want to sell the shares on listing then trading account will be required. That is why brokers will advise you to open a trading account along with demat account when you apply for an IPO for the firsts time. An important point to be remembered here! When you apply for an IPO it is not an offer but an invitation to offer. Only when the IPO issuer offers you shares it amounts to an offer.
There are two important questions you need to address here: How to apply for IPO online and the IPO application process. Here is what you need to know when you apply for an IPO of a company
The IPO application process has become substantially simpler in the last 10-15 years. In the process it has substantially empowered the retail investors across India.