What Is An IPO?

As we mentioned above, when a company needs funds to grow, it approaches the public for funds. It offers shares in the company to the investing public in exchange for cash. In short, the management relinquishes some part of the ownerships to investors, who become part-owners of the company.

There are several processes involved in the IPO. The company appoints underwriters to sell stock to the public, gets registration from the Securities & Exchange Board of India (SEBI) and organises roadshows to sell the IPO to the public. After that, the IPO is thrown open to investors. After the issue closes, the stock gets listed on stock exchanges like the Bombay Stock Exchange and the National Stock Exchange, where it can be freely bought and sold.

IPO shares are reserved for specific categories of investors like high net-worth individuals and qualified institutional buyers. After allotment, the investors are free to sell the shares and make any profit if there is price appreciation.