What is IPO and how it works? 

Hyderabad: About 52 companies had come up with IPOs in the financial year 2021-22. As a result, these companies raised Rs 1.11 trillion in the equity market through IPOs. And with so much money being raised by different companies, you might be thinking about what an IPO is. Initial Public Offering (IPO) is a process […]

Hyderabad: About 52 companies had come up with IPOs in the financial year 2021-22. As a result, these companies raised Rs 1.11 trillion in the equity market through IPOs. And with so much money being raised by different companies, you might be thinking about what an IPO is.

Initial Public Offering (IPO) is a process of offering shares of a new or existing private company to the general public for the first time. In this way, an entity can raise capital by issuing shares to the public for business expansion. The company that issues shares is not obliged to repay the capital raised to investors.

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Individuals interested in taking part in the IPO should bid in lots. The IPO issuing company decides the lot size and price. In simple terms, the minimum number of shares an investor is required to bid for is called lot size. A retail or individual investor can invest a maximum of Rs 2 lakh in IPOs.

Any company interested in going public should employ an investment bank to supervise the process of IPO. It should also release all relevant documents related to IPO so that an investor can examine the documents before applying for an IPO.

How IPOs are allotted 

When a company announces IPO, the investors start applying for shares via a Demat account. The allotment of shares depends on the response a company receives after announcing IPO.

If the IPO is oversubscribed, the allotment of shares happens through a computerised lottery system. If the IPO is undersubscribed, the allotment takes place without the lottery system. The investors who were allotted the shares of a company can sell them in the open market once the shares get listed on the stock exchanges. If the company doesn’t receive enough applications, it can cancel issuing IPO.