What is an IPO?
An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. Companies fall into two broad categories, private and public.
A privately held company has fewer shareholders and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company, just put in some money, files the right legal documents and follows the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. It usually isn't possible to buy shares in a private company. You can approach the owners about investing, but they're not obligated to sell you anything. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as "going public.
What are the different kinds of issues?
“Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler. The classification of issues is illustrated below:
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or
both for the first time to the public. This paves way for listing and trading of the issuer’s securities.
A follow on public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.
Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.
A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital.
What is a draft prospectus?
A draft prospectus provides the information on the financials of the company, promoters, background, tentative issue price etc. It is filed by the Lead Managers with the Securities & Exchange Board of India (SEBI) to provide issue details. Overview of the draft prospectus can be seen on www.sebi.gov.in (SEBI’s web site). The final prospectus is printed after obtaining the clearance from SEBI and the Registrar of Companies (ROC).
How can I get information on forthcoming IPOs and Listing of IPOs?
When you open the http://www.nseindia.com , http://www.bseindia.com, http://www.moneycontrol.com/ipo websites, the home page has a feature "IPO” which features in-depth analysis of IPOs, book building issues and rights-cum-public offers.
What is the fixed price IPO ?
It’s an issue where issuing company defines single price per share. After subscription, company decides the basis of allotment depending upon under/over subscription. On this basis an applicant may or may not get allotment of shares.
What is the Book Building price IPO?
‘It’s an issue where issuing company defines a price range i.e floor (lower) price and Cap (Upper) price. After subscription, company decides the basis of allotment depending upon under/over subscription. On this basis an applicant may or may not get allotment of shares
What is definition of retail investor?
Retail Individual Investor’ means an investor who applies or bids for securities of or for a value of not more than Rs.1,00,000/=.
How I can invest in IPO?
If you are investing first time then you should open trading cum demat account with us. Please contact us and our relationship manager would guide you
What is the minimum application money I need to pay?
This differs from issue to issue. In a normal issue, the Lead managers decide the value and this would be notified on the form. In a book building issue, a price range is declared and the investors who quote higher value would be allotted. In Highlights page of any IPO these issues are explained in detail.
Is this IPO a good investment for long term or listing gains?
When you go through the executive summary of an IPO, our research team provides its opinion on the issue based on an analysis of the company’s financials, promoters’ background and other qualitative issues. This can help in guiding your investment decision.
Can Madhuvan help me in knowing my allotment status?
You can call our Relationship Manager and know allotment status. We would also SMS you detailed of shares allotted to you when shares are credited in your demat account with us
When will the refund orders reach me?
In a public issue, you will be getting refund or share certificates after 40-45 days from the closing date of the issue. In a book building issue, you will be getting the refund/certificates in 30-40 days from the closing date.
In book building can I improve my chances of allotment by quoting the price above the price band?
Please bear in mind that in a book building exercise the final price is decided based on at what price the maximum demand can be generated for the issue. Your quoting a price above the band "will not" in any way improve your chances of getting an allotment.
Ultimately you will be allotted the shares only at the price decided by the company based on the bids received. Also note that if you quote a price below the band then you will get the last priority for allotment and that too at the discretion of the company.
Is it mandatory to have a demat account to apply in an IPO
Yes it's mandatory to have a demat account to apply in an IPO. IPO Allocated shares are transfer to investors demat account. If you don't provide correct demat account information your IPO bidding application will not consider for share allotment.
Always double check that you provided correct DP ID and Client ID details in the bid/application forms before submitting the form.
IPO Related Terms
Price Band: Price band indicates the different price levels within a given range in which the investor can enter his bid.
Floor Price: It is the lower end of the price band.
Cap Price: It is the upper end of the price band.
Offer Document: offer document means prospectus in case of a public issue, which is file with Registrar of companies (ROC) and stock exchanges. The offer document contains all relevant details pertaining to the issue upon which the investors can make his/her decision.
Draft Offer Document: means the offer document in the draft stage, which is filed with SEBI for its observations. The draft offer documents are filed with SEBI atelast 21 days prior to filing the offer document with ROC and Exchange.
Cut off Price: In case of public issues the actual discovered price/ issue price can be anything between a given price band. The discovered issue price is called the cut off price.
Basis of Allotment: The allotment is on a proportionate basis