What is an IPO?
An IPO (Initial Public Offering) is the process by which a private company offers its shares to the public for the first time and becomes a publicly listed company on a stock exchange.
When a company wants to raise capital for growth, expansion, or debt repayment, it can choose to issue shares to the general public through an IPO. Once the IPO is launched and shares are sold, they can be freely traded in the stock market.
How an IPO Works:
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The company hires investment banks to manage the IPO process.
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It files a document called DRHP (Draft Red Herring Prospectus) with the market regulator (like SEBI in India).
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A price band is decided for the shares.
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Investors apply for shares during the IPO period.
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After the IPO closes, shares are allotted to investors.
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The company gets listed on a stock exchange (like NSE or BSE), and trading begins.
Types of Investors in an IPO:
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Retail Investors (like individuals)
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Institutional Investors (like mutual funds, banks)
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High Net-Worth Individuals (HNIs)
Benefits of an IPO:
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For the company: Access to large funds and public recognition.
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For investors: Early investment opportunity in a growing company.
In simple terms, an IPO is the first step for a company to enter the stock market and for the public to become shareholders.