How to Invest in IPO

How to Invest in IPO: A Complete Guide for Beginners
Investing in an Initial Public Offering (IPO) represents one of the most compelling opportunities available to retail investors in India. When a company launches an IPO, it transitions from private to public ownership by offering shares to the general public for the first time. This process allows investors to purchase shares at the initial issue price before the company officially lists on major exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
This comprehensive guide will walk you through everything you need to know about IPO investments in India—from understanding the fundamentals and application process to evaluating opportunities and managing risks.

Understanding IPOs
An Initial Public Offering occurs when a privately held company offers its shares to the public for the first time to raise capital. Following the IPO, the company becomes publicly traded with its shares listed and actively traded on stock exchanges.

Companies typically pursue IPOs to:

• Secure capital for business expansion and growth initiatives
• Reduce existing debt obligations
• Enhance market reputation and brand visibility
• Provide early investors and founders with exit opportunities

Types of IPOs in India :-
Fixed Price IPO
In this straightforward model, the company establishes a single, non-negotiable price at which shares will be issued. Investors must apply at this predetermined price.
 

Book Building IPO
This more dynamic approach involves the company setting a price range (for example, ₹100–₹120 per share). Investors can place bids anywhere within this range, with the final issue price determined based on overall investor demand and subscription levels.

Getting Started: Requirements for IPO Investment
 

Eligibility Criteria
To participate in IPO investments in India, you'll need:
•    Demat Account:  Essential for holding shares in electronic form
•    Trading Account: Required for executing buy/sell transactions (typically linked to your Demat account)
•    Bank Account: Must be enabled with UPI or ASBA (Application Supported by Blocked Amount) capability
•    Investor Status: Must qualify as an Indian resident, Non-Resident Indian (NRI), or institutional investor
 

The IPO Application Process: Step-by-Step Guide

Step 1: Open Essential Accounts
Your investment journey begins with opening a Demat and trading account through a registered broker. These accounts work together—the Demat account holds your securities while the trading account facilitates transactions.

Step 2: Research Upcoming IPOs
Stay informed about upcoming offerings through reliable sources:
•    Official Exchange Websites: NSE (www.nseindia.com) and BSE (www.bseindia.com)
•    Regulatory Resources: SEBI's website (www.sebi.gov.in)
•    Brokerage Platforms: Most brokers provide IPO calendars and details
•    Financial News: Business publications and financial portals

Step 3: Evaluate IPO Opportunities

Make informed decisions by analyzing:
•    Financial Performance: Review the company's revenue growth, profitability trends, and debt levels
•    Industry Position: Assess market share, competitive advantages, and sector growth projections
•    Grey Market Premium (GMP): Consider unofficial indicators of market sentiment
•    Subscription Trends: Monitor institutional and retail investor demand during the subscription period

Step 4: Submit Your Application
ASBA Method :-
•    Available through your net banking interface
•    Funds are blocked (not debited) in your account until allotment confirmation
•    Blocked amounts earn interest during the application period
UPI-Based Application :-
•    Convenient application through popular payment apps (Google Pay, PhonePe, Paytm, BHIM UPI)
•    Simply provide your UPI ID when applying through your broker's platform
•    Approve the mandate request on your UPI app to complete the application

Step 5: Understanding the Allotment Process
IPO share allocation follows SEBI's regulated process:
•    In cases of oversubscription (high demand), shares are allocated through a transparent lottery system
•    With undersubscription (low demand), you may receive full allotment of requested shares
•    Track your application status through the registrar's website (common registrars include Link Intime(MUFG Intime) and KFintech)

Step 6: Post-Allotment Actions
If you receive shares:
•    They will be automatically credited to your Demat account before the listing date
•    You can choose to: 

1. Sell on listing day to capitalize on potential listing gains
2. Hold for long-term growth based on your investment strategy and the company's prospects

Tax Considerations for IPO Investments
Understanding the tax implications helps optimize your returns:

1. Short-Term Capital Gains (STCG): 20% tax applies when shares are sold within one year of allotment
2. Long-Term Capital Gains (LTCG): 12.5% tax on profits exceeding ₹1 lakh when shares are sold after one year

IPO investments in India offer exciting potential for portfolio growth when approached with thorough research and strategic planning. While these opportunities provide early access to promising companies, they also carry inherent risks that require careful consideration.

By establishing the necessary accounts, conducting comprehensive research, utilizing the appropriate application methods, and staying informed throughout the process, you can enhance your IPO investment experience and potentially secure favorable returns in India's dynamic stock market.

Ready to begin your IPO investment journey? Start today by opening a free demat account with JM Financial Services and explore upcoming offerings that align with your investment goals and risk tolerance.