When a company lists on the stock exchange for the first time, it sells shares to the public through an Initial Public Offering (IPO). Applying for an IPO in India has become far simpler than it used to be: no forms, no cheques, just a few taps in your broking app or net banking, with the money blocked through UPI or ASBA until allotment.
Deciding whether a particular issue makes sense for you is another matter. Here are the mechanics, and the reading to do first.
IPO, FPO and OFS: what's the difference?
- IPO (Initial Public Offering) — a company's first sale of shares to the public, after which it gets listed on NSE and/or BSE.
- FPO (Follow-on Public Offer) — an already listed company issuing more shares to the public.
- OFS (Offer for Sale) — existing shareholders such as promoters or private equity investors sell their shares. The money goes to them, not to the company.
Many IPOs combine a fresh issue (money goes to the company) and an OFS. A large OFS means existing investors are cashing out — not necessarily bad, but worth understanding. Listed companies can also run a separate OFS through a stock exchange window.
What you need before applying
- A demat and trading account — see our guide on how to open a demat account.
- A bank account that supports ASBA, or a UPI ID linked to your own bank account.
- Your PAN, which must match across your demat and bank accounts. Applications are typically checked by PAN, so multiple applications under one PAN in the same category can be rejected.
ASBA and the UPI mandate
ASBA (Application Supported by Blocked Amount) means the application money stays in your bank account but is blocked — you can't spend it, but it isn't debited either. You keep earning savings interest on it. Only if shares are allotted is the amount actually debited; otherwise the block is released.
You can apply in two common ways:
- Through net banking — use the IPO/ASBA section of your bank's site. The bank blocks the funds directly.
- Through your broker's app with UPI — enter the bid, then approve a UPI mandate in your UPI app. Retail individual investors can use UPI for applications up to ₹5 lakh.
If you apply through UPI, remember to accept the mandate before the cut-off time on the closing day. An unapproved mandate means your application doesn't go through.
Retail category, lot size and price band
IPO shares are divided into categories — qualified institutional buyers, non-institutional investors and retail individual investors (RIIs). As a retail investor, your total application value can be up to ₹2 lakh. Some issues also have quotas for employees or existing shareholders of a parent company.
You bid in lots (the minimum number of shares per application) within a price band. Retail investors can tick "cut-off", which means you agree to pay whatever final price is set within the band.
Worked example
Suppose an IPO has a price band of ₹95–₹100 and a lot size of 150 shares.
| Detail | Amount |
|---|---|
| One lot at cut-off (150 × ₹100) | ₹15,000 |
| Maximum lots under ₹2 lakh | 13 lots (₹1,95,000) |
| 14 lots would be | ₹2,10,000 — outside retail limit |
If you apply for 13 lots at cut-off, ₹1,95,000 is blocked in your account until allotment is finalised.
How allotment works
If the retail portion is undersubscribed, every valid applicant gets what they applied for.
When it's oversubscribed — which is common in popular issues — SEBI's rules aim to give as many retail applicants as possible at least one lot, chosen by a computerised lottery. In practice, applying for 13 lots doesn't improve your odds much over applying for one; you may still get one lot or nothing.
In an oversubscribed IPO, the retail allotment is largely a lottery for the minimum lot. Bid the amount you are comfortable holding, not the amount you hope to be allotted.
You can check allotment status on the registrar's website or the exchange site using your PAN or application number.
Listing day: what to expect
Under SEBI's current timeline, shares are generally listed on the third working day after the issue closes (often written as T+3). On listing day, the shares appear in your demat account and start trading at a price discovered in a special pre-open session.
Listing prices can be well above or well below the issue price. Some investors sell on day one; others hold. If you sell within 12 months, any gain is short-term capital gain, taxed at 20% for listed equity shares under current rules. Our article on capital gains tax on mutual funds and shares explains this further.
Reading the RHP: what to look for
The Red Herring Prospectus (RHP) is the main offer document. It is long, but you don't need to read every page. Focus on:
- Objects of the issue — what will the fresh money be used for? Debt repayment, expansion, or general corporate purposes?
- Risk factors — the company is required to spell these out. Read the top ones carefully.
- Financials — revenue, profit and debt over the last few years. Is growth consistent?
- Promoter holding before and after the issue, and how much is being sold through the OFS.
- Valuation — the price compared with earnings and with listed peers, which the RHP lists.
- Litigation — pending legal cases against the company or promoters.
Risks to keep in mind
- Limited history. Unlike listed shares, there's no trading record to judge.
- Hype. Grey-market chatter and social media buzz are not reliable guides to listing price or long-term value.
- Lock-in expiry. When pre-IPO investors' lock-ins end, additional selling can follow.
- Concentration. Putting a large part of your savings into one new company is risky regardless of how popular the issue is.
Investments in securities markets are subject to market risks; read all related documents carefully.
Frequently asked questions
Can I cancel or modify my IPO application?
Yes, while the issue is open you can usually modify or withdraw your bid through the same channel you used. After the issue closes, retail bids can't be withdrawn.
Can I apply twice using two demat accounts?
Not under the same PAN in the same category; duplicate applications are liable to be rejected.
What if I am not allotted shares?
The blocked amount is released to your bank account, usually by the day after the basis of allotment is finalised.
Key takeaways
- An IPO is a company's first public sale of shares; an OFS is existing shareholders selling theirs.
- ASBA and UPI keep your money in your bank, only blocked, until allotment.
- Retail applications can go up to ₹2 lakh; in oversubscribed issues, allotment is mostly a lottery for one lot.
- Read the RHP's objects, risk factors, financials and valuation before you bid.
- Listing-day price moves are unpredictable — decide based on the business, not the buzz.
Our team can help you set up a demat account and understand how the application process works. Explore our investment services to know more.
