IPO basics for retail investors in India

What an IPO is, in one paragraph

An initial public offering (IPO) is the first time a company sells its shares to the public so they can trade on an exchange such as BSE or NSE. The company may raise fresh capital (money goes to the company), run an offer for sale (existing owners sell some of their shares, and the company gets nothing), or both. Which mix it is tells you a lot. A company raising money to repay debt or fund expansion is a different story from one where early investors are cashing out.

How the process runs

1. Draft and final offer documents. The company files a draft with SEBI and later a final prospectus. The prospectus is long, but the sections on "objects of the issue", "risk factors" and the financials are the ones to read. The SEBI website hosts filed offer documents.
2. Price band and lot size. The company announces a price band, say ₹100 to ₹105, and a lot size, the minimum number of shares you must bid for.
3. Three days of bidding. You bid through your broker's app using UPI or your bank's ASBA facility, which blocks the amount in your account without debiting it. UPI can be used for bids up to ₹5 lakh.
4. Allotment. If the issue is oversubscribed, shares are allotted to retail applicants by lottery. If you do not get shares, the blocked amount is released.
5. Listing. Shares list on the exchange within three working days of the close (T+3). You can sell from the day they list.

Everything is held in a demat account, so you need one. See demat vs statement of account if the distinction is new to you, and how SEBI protects investors for the regulator's role.

A worked example of lots and limits

Assume a hypothetical IPO with a price band of ₹100 to ₹105 and a lot of 140 shares. These numbers are invented for the illustration.

• One lot at the upper price: 140 × ₹105 = ₹14,700
• The retail limit is ₹2 lakh, so the maximum is 13 lots: 13 × ₹14,700 = ₹1,91,100. A 14th lot would take you to ₹2,05,800, which exceeds the limit.
• Bidding at the cut-off price means you accept whatever final price is set within the band; blocking is done at the upper price.

Suppose the retail portion is oversubscribed 20 times. Then, roughly, one in twenty applicants receives a lot. Bidding for 13 lots does not give you 13 lots; in an allotment by lottery it gives you the same single chance as bidding for one lot in most oversubscribed issues. That is why many retail investors apply for one lot only, and why bidding the maximum ties up more money without raising your odds.

If you did get a lot and the shares listed at ₹125, the paper gain would be (125 − 105) × 140 = ₹2,800. If you sell it the same day, the gain is short-term and taxed at 20% as of October 2026 on listed equity; confirm the current rate on the Income Tax Department site. The capital gains tax calculator and brokerage calculator show what is left after costs, and our guide to what trading actually costs goes through each charge.

Who gets what

SEBI's framework splits an issue between categories: qualified institutional buyers, non-institutional investors, and retail individual investors, with at least 35% of most issues reserved for retail. Before the issue opens, anchor investors, large institutions, are allotted a portion at the issue price. SEBI requires half of an anchor's allotment to be locked in for 30 days and the rest for 90 days. When those lock-ins expire, a large number of shares can become available to sell at once, which is why some prices weaken around those dates. The dates are in the offer documents.

What to check before you bid

• Use of proceeds. Fresh issue to grow or repay debt, or an exit for early investors?
• Profits and cash flow. Is the company profitable? Do profits turn into cash?
• Valuation against listed peers. Compare the IPO's price-to-earnings with comparable listed companies; see PE, PB and ROE for how to read the ratios, and the Nifty PE ratio page for how the broader market is priced.
• Promoter and management background, and any pending litigation, in the risk factors.
• Grey market premium. It is an unofficial, unregulated number quoted informally. It is a sign of sentiment, not a fact, and it can disappear before listing.
• Your purpose. A listing-day gain and a ten-year holding are different strategies; decide which you are doing.

The same instincts that cause people to chase an NFO apply here: novelty and a fear of missing out. Our guides on herd mentality and recency bias describe why a hot issue feels safer than it is.

IPO or a mutual fund?

You do not have to pick IPOs yourself to own them. Some equity mutual funds invest in IPOs, and a diversified fund spreads the risk of a single bad listing. If you prefer to compare funds first, the screener and the mutual funds hub are a starting point. A sensible approach for most investors is to keep the core of the portfolio in diversified funds and treat direct IPO bids as a small, optional extra. Read about averaging on listed shares in our stock average calculator if you decide to hold.

Be careful with unsolicited tips. Applications should go only through your registered broker or bank; the exchange and depository sites, such as CDSL, publish investor-protection advice.

One more point on listing day: the opening price is set through a special pre-open call auction, and the first trades can be volatile. Placing a limit order instead of a market order protects you from a fill far from what you expected. If you plan to hold, decide in advance what would make you sell, such as a change in the business, rather than reacting to the first day's price. And remember that a listing gain is not the same as a good investment; many strong companies list at a fair price and take years to reward holders.

This post is for education only and is not investment advice. IPO rules, limits and tax rates change; verify them with SEBI, the exchanges and your broker before bidding.