Complete IPO Guide
A plain-language IPO guide for India: what an IPO is, how to apply, what GMP means, how allotment works, SME vs mainboard IPOs, subscription numbers, tax on IPO gains and common mistakes.
What is an IPO?
An Initial Public Offering (IPO) is the first time a company sells its shares to the public. Until then the company is owned by its founders, private investors or funds. After the IPO its shares are listed on a stock exchange such as NSE or BSE, and anyone with a demat account can buy and sell them.
Why companies launch IPOs
- Raise money for growth, new plants or acquisitions
- Repay debt and strengthen the balance sheet
- Give early investors and promoters a way to sell part of their holding (an offer for sale)
- Gain visibility and a market price for the business
How to apply for an IPO
- Have a demat and trading account with any broker and a bank account linked to UPI.
- Check the issue details: open and close dates, price band, lot size and category (retail, QIB, NII).
- Open your broker app, go to IPOs, choose the issue and enter the number of lots and the bid price (usually the upper band, or "cut-off").
- Enter your UPI ID and approve the mandate request in your UPI app. The amount is only blocked, not debited.
- Wait for allotment, normally on the third working day after the issue closes. If shares are allotted the money is debited, otherwise the block is released.
Retail investors can bid for up to ₹2 lakh per application. Applying with several demat accounts that belong to different people in your family is allowed, but one PAN can apply only once per issue.
Understanding GMP and the grey market
Grey Market Premium (GMP) is the unofficial price at which IPO shares are said to trade before they are listed, compared with the issue price. If the upper band is ₹100 and the GMP is ₹20, the market expects a listing around ₹120, an estimated gain of 20%.
- GMP is not regulated, not an exchange price and not guaranteed.
- It can move several times a day with demand, subscription numbers and market mood.
- It is only an indicator of sentiment. Many issues with a high GMP have listed lower, and the reverse has also happened.
Use it as one input next to the company's financials, valuation, subscription figures and the overall market, never as the only reason to apply.
How IPO allotment works
If an issue is over-subscribed, not everyone gets shares. For retail investors the registrar runs a computer-based lottery among valid applications; each winner gets one lot. If an issue is subscribed less than 1x, every valid applicant normally gets what they bid for.
- Basis of allotment is published on the third working day after the close.
- You can check status on the registrar's website (Link Intime, KFinTech, Bigshare and others) using PAN, application number or DP/client ID.
- Shares are credited to your demat account before listing day; unsuccessful applications get the blocked amount released.
SME vs mainboard IPOs
| Mainboard | SME | |
|---|---|---|
| Exchange platform | NSE / BSE main segment | NSE Emerge / BSE SME |
| Company size | Larger, longer track record | Smaller, younger companies |
| Lot size | Small (about ₹15,000) | Large (often ₹1 lakh or more) |
| Liquidity | Usually high | Often thin; prices can swing sharply |
| Risk | Moderate to high | High |
SME IPOs can list at big premiums or big discounts. Because of the large lot size and low trading volumes, size your bet carefully.
Reading subscription numbers
The subscription figure tells you how many times the shares on offer have been applied for. A 20x subscription means bids for 20 times the shares available. It is reported by category:
- QIB: qualified institutional buyers (mutual funds, insurers, FPIs). Often bid on the last day.
- NII / HNI: non-institutional investors bidding above ₹2 lakh.
- Retail: individuals bidding up to ₹2 lakh.
Strong QIB demand is generally read as a sign of institutional confidence. Remember that the final-day numbers matter most, because many large bids arrive in the last hours.
Tax on IPO gains
- Listing gain (sold within 12 months): treated as short-term capital gains on listed equity, taxed at the prevailing short-term rate.
- Held for more than 12 months: long-term capital gains, with an annual exemption limit and a lower rate above it.
- Rates and limits change in the Union Budget, so check the current figures or ask a tax professional before you file.
This is general information, not tax advice.
Common mistakes to avoid
- Applying only because the GMP is high
- Not reading the red herring prospectus (RHP): promoter holding, use of proceeds, litigation and valuation
- Ignoring the lot size and total amount blocked in SME issues
- Blocking funds in several accounts and missing the UPI approval deadline
- Selling or holding on listing day without a plan
- Trusting "sure-shot" tips from social media or paid groups