What is IPO ?
You may have heard about the bumper listing of Avenue Supermarket—the company that runs D-Mart stores around the country. Its stock price jumped 102% on the first day after getting listed. Shares of Avenue Supermarket were trading at over Rs. 600, despite the issue price being just Rs. 299.This is just one of the many Initial Public Offerings (IPOs) in the country.
When you buy such shares, you make an IPO investment. You get ownership in the company, proportionate to the value of your shares. These shares then get listed on the stock exchange. The stock exchange is where you can sell your existing shares in the company or buy more.
How Does IPO Works ?
The Securities and Exchange Board of India (SEBI) regulates the entire process of investment via an IPO in India. A company intending to issue shares through IPOs first registers with SEBI. SEBI scrutinises the documents submitted, and only then approves it. While awaiting the approval, the company prepares its prospectus, in which it mentions that SEBI’s approval is pending.
Once approved, the company decides two things; it fixes the price of the share and the number of shares it plans to issue. There are two types of IPO issues: fixed price and book building. In the former, the company decides the price of the share in advance. In the latter, the company gives you a range of prices. You then need to bid for shares within this range.