When a company decides to sell its shares to the public for the first time, it triggers one of the market’s most choreographed processes — the Initial Public Offering. Behind the headlines of oversubscription numbers and listing-day pops lies a precise regulatory journey: from the draft prospectus to price discovery to the allotment lottery that decides whether your application succeeds. For retail investors, IPOs offer early access to growing companies, but also risks that the hype cycle obscures. Here is how IPOs work in India, end to end.

From DRHP to regulatory approval

The journey begins when the company files a Draft Red Herring Prospectus — the DRHP — with SEBI. This thousand-page document discloses everything: the business model, financials, risk factors, how the raised money will be used, promoter backgrounds and litigation. SEBI reviews it, issues observations, and the company files the final Red Herring Prospectus with the Registrar of Companies. The merchant bankers — investment banks managing the issue — build the order book by marketing to institutional investors in roadshows. Only after these approvals does the issue open for public subscription, typically for three working days.

How pricing and subscription work

Most Indian IPOs use book-building: instead of a fixed price, the company sets a price band — say, 300 to 320 rupees — and investors bid within it. After subscription closes, the cut-off price is set at the level where demand absorbs the supply; retail investors can simply bid at cut-off, agreeing to whatever price is discovered. Subscription numbers are published daily by investor category — Qualified Institutional Buyers, Non-Institutional Investors and retail — and the retail portion is typically 35 per cent of the issue in a standard IPO. Heavy oversubscription, especially in the HNI category, signals demand but guarantees nothing about listing-day performance.

Allotment: the lottery explained

When retail demand exceeds supply — the norm in popular IPOs — allotment happens by lottery: each successful applicant gets exactly one lot, and the winners are drawn randomly among valid applicants. Applying with multiple demat accounts of family members is the legitimate way to improve your odds; applying multiple times from the same PAN gets all your applications rejected. The basis of allotment is finalised within days, shares are credited to demat accounts, and listing happens on the BSE and NSE — under current timelines, within about three working days of issue closure, making the whole cycle remarkably fast.

• DRHP: the draft prospectus — read the risk factors and use-of-proceeds before anything else.
• Price band: bid within it, or at cut-off as a retail investor.
• Allotment: lottery-based when oversubscribed; one PAN, one valid application.
• Timeline: listing roughly 3 working days after the issue closes.

How to apply: UPI and ASBA

Retail applications run on ASBA — Application Supported by Blocked Amount. You apply through your bank’s net banking or your broker’s platform, and the bid amount is merely blocked in your bank account, continuing to earn interest until allotment. UPI-based applications have made this seamless: approve the mandate on your UPI app and the money stays put unless shares are allotted. Never pay the application money upfront to anyone — ASBA’s block-not-debit design exists precisely to prevent misuse. Check the allotment status on the registrar’s website using your PAN, and on listing day the shares appear in your demat account ready to trade.

Should you invest? Reading beyond the hype

Listing-day gains make headlines; the quieter data shows many IPOs underperform over longer periods. Before applying, read the DRHP’s own risk factors — companies are legally required to disclose what could go wrong. Ask why the company is raising money: growth capital and debt repayment are healthier uses than pure offer-for-sale exits where existing investors cash out. Compare the implied valuation with listed peers — aggressive pricing leaves no room for listing gains. And size your bets: IPO applications should be a small, satellite part of a portfolio, not its core. The lottery decides allotment; your judgment should decide application.

FAQs

What is the minimum investment in an IPO? One lot — the lot size and price band define it, typically around 13,000 to 15,000 rupees for retail.

Can I apply for an IPO without a demat account? No — shares are allotted only in dematerialised form, so a demat account is mandatory.

What happens to my blocked money if I get no allotment? The UPI mandate or ASBA block is released automatically, usually within a day of finalisation.

IPOs compress a company’s coming-out party into a three-day subscription window — but the real work happens before you apply, in the DRHP’s risk factors and the valuation maths. Apply through ASBA, respect the one-PAN rule, bet small, and let the lottery handle the rest.

Compiled by the Khabar 24h Editorial Desk from publicly available sources.