IPO (Initial Public Offer)

The Primary Market, also known as the new issue market or Initial Market, in primary Market newly issued securities offer and sold to the public for the first time and this process is known as IPO (initial public offer).

Primary market facilitates the capital-raising process for companies and governments. It allows them to issue and sell securities to the public to generate funds for various purposes.

Primary market involves issuers, such as companies or governments, and investors. Companies issue new securities to raise capital for expansion, debt repayment, or other financial needs, Investment banks and underwriters play a crucial role in the primary market. They help companies navigate the IPO process.

Investing in IPOs can be a smart move if you are an informed investor. But not every new IPO is a great opportunity. Benefits and risks go hand-in-hand. Before you join the bandwagon, it is important to understand the basics.

An IPO is generally initiated to infuse the new equity capital to the firm, to facilitate easy trading of the existing assets, to raise capital for the future or to monetize the investments made by existing stakeholders.

The institutional investors, high net worth individuals (HNIs) and the public can access the details of the first sale of shares in the prospectus. The prospectus is a lengthy document that lists the details of the proposed offerings.

Once the IPO is done, the shares of the firm are listed and can be traded freely in the open market. The stock exchange imposes a minimum free float on the shares both in absolute terms and as a ratio of the total share capital.

Advantages of Investing in IPO

Investing in IPOs comes with so many extra merits. Here are a few of the benefits you must know before making your investment decision.

Investing in an IPO withholds the following advantages-

Listing Gains : One of the benefits of investing in an IPO is gain on a listing day. Companies get their stock valued and mention the offer price in the prospectus. An investor can apply for a particular number of shares at that specific price. If the share price on a listing day is trading higher than the price paid when applied for IPO, it is called the listing gain.

Liquidity : Investors can sell the stocks in the open market once the company goes public. This allows investors to realise gains without waiting for shares to be repurchased. Since the investors can buy and sell stocks anytime, it increases their liquidity.

Chance to Small Retailers : SEBI has made several rules and regulations to ensure that small retail investors get a fair chance to invest in an IPO. Sometimes, a small investor may not get this chance in the secondary market.

IPO Norms : The IPO markets are safe and professional, thereby protecting retail investors. The company’s prospectus consists of all information like performance, financials, growth, risks and future plans. Hence, this gives investors enough information to decide to invest in an IPO.

Transparency : Anyone investing in an IPO and receiving shares allotment becomes a company shareholder. The company owners ensure to keep their investors invested with them. Also, the company plans to achieve its goals and reach profit levels as promised to investors and analysts. The stock price will rise or fall depending on the company’s performance.

Economical : SEBI has developed an application that supports block amounts for IPO. This application ensures that the money is debited from your account only after the shares are allotted. The money continues to earn interest in your account till the allotment day. However, this is not the case in the secondary market, where the amount is debited immediately after purchasing shares.

Shareholder Ownership Authority : When you invest money in a company, you procure the voting rights in the company general meetings. For instance, the company you invested in announces in their annual general meeting that it will expand its operations to increase its profitability. As an equity share holder, you have the right to vote against such a decision.

Buying Cheap : The IPO is often at the lowest price, especially when you invest in a small company that has the potential to grow big. This is because the company offers its shares at a discounted rate. Hence, you can take an opportunity through an IPO because it may be difficult to buy shares when the prices increase.

Terms Associated with IPO

To have informed knowledge about an IPO, it is necessary that one must know about some basic terms used in the process. Some of the commonly used terms are provided in the table below:

Terms Descriptions
Issuer An issuer can be the company or the firm that wants to issue shares in the secondary market to finance its operations.
Underwriter An underwriter can be a banker, financial institution, merchant banker, or broker. It assists the company to underwrite their stocks. The underwriters also commit that they will subscribe to the balance shares if the stocks offered at IPO are not picked by the investors.
Fixed Price IPO Fixed Price IPO can be referred to as the issue price that some companies set for the initial sale of their shares.
Price Band A price band can be defined as a value-setting method where a seller offers an upper and lower cost limit, the range within which the interested buyers can place their bids. The range of the price band guides the buyers.
Draft Red Herring Prospectus (DRHP) The DRHP is the document that lets the public know about the company’s IPO listings after the approval made by SEBI.
Under Subscription Under Subscription takes place when the number of securities applied for is less than the number of shares made available to the public.
Oversubscription Oversubscription is when the number of shares offered to the public is less than the number of shares applied for.
Green Shoe Option It refers to an over-allotment option. It is an underwriting agreement that permits the underwriter to sell more shares than initially planned by the company. It happens when the demand for a share is seen higher than expected.
Book Building Book building is the process by which an underwriter or a merchant banker tries to determine the price at which the IPO will be offered. A book is made by the underwriter, where he submits the bids made by the institutional investors and fund managers for the number of shares and the price they are willing to pay.
Flipping Flipping is the practice of reselling an IPO stock in the first few days to earn a quick profit.

Any individual who is an adult and is capable of entering into a legal contract can serve the eligibility norms to apply in the IPO of a company. However, there are some other inevitable norms an investor needs to meet.

The eligibility criteria are-
  • It is required that the investor who is interested in buying a share in an IPO has a PAN card issued by the Income Tax department of the country.
  • One also needs to have a valid Demat account.
  • It is not required to have a Trading Account, Demat account serves the purpose. However, in case an investor sells the stocks on listings, he will need a trading account. Therefore, it is often advised to open a trading account along with the Demat account when an investor is looking forward to investing in an IPO for the first time.

Open your Demat account right now with NIRMAN to get regular updates on the best issuing IPO’s.

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Dear Investor,
As you are aware, under the rapidly evolving dynamics of financial markets, it is crucial for investors to remain updated and well-informed about various aspects of investing in securities market. In this connection, please find a link to the BSE Investor Protection Fund website where you will find some useful educative material in the form of text and videos, so as to become an informed investor.
We believe that an educated investor is a protected investor !!!


KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.


No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account.


1.Stock broker/Depository participant can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.

2.Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.

3.Pay 20% upfront margin of the transaction value to trade in cash market segment.

4.Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 dated August 31, 2020 and other guidelines issued from time to time in this regard.

5.Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.

6.All the clients are requested not to blindly follow these unfounded rumours, tips etc. and invest after conducting appropriate analysis of respective companies. Prevent Unauthorised transactions in your account. Update your mobile numbers/email IDs with your stock broker/Depository participant. Receive information of your transactions directly from Exchange/Depository on your mobile/email at the end of the day

.......... Issued in the interest of Investors

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