How to Invest in an IPO in India and Choose the Right Company

How to Invest in an IPO?

Investing in the right IPO is important and choosing the right company is actually very important.

In this article, we will understand how to invest in an IPO in India, how to analyse a company before applying, and what to consider before making an investment decision.

But before that, let's understand what an IPO is.

What Is an IPO?

IPO stands for Initial Public Offering. It is the process through which a company offers its shares to the public for the first time and gets listed on a stock exchange.

Companies launch IPOs to raise money for expansion, repay debt, invest in new projects, or allow existing shareholders to sell their shares.

There are two main components of an IPO.

Fresh Issue vs. Offer for Sale (OFS)

Fresh Issue

• The company issues new shares.
• The money generally goes to the company.
• Funds may be used for business growth or other stated purposes.

Offer for Sale (OFS)

• Existing shareholders sell their shares.
• The money generally goes to the selling shareholders.
• Existing investors get an opportunity to sell part of their investment.

Some IPOs include both components. An OFS is not necessarily a bad sign, but investors should understand who is selling and why.

Remember, an IPO does not guarantee profits. The share price can rise or fall after listing.

How to Invest in an IPO in India

Applying for an IPO has become easier through online investment platforms, brokers, and supported banking channels.

Step 1: Open a Demat Account

A Demat account holds shares electronically. You can open one through a registered broker or depository participant.

Make sure your PAN, bank details, and other required information are correct before applying.

Step 2: Find Upcoming IPOs

Check upcoming IPOs through your broker's platform or reliable financial sources, such as the NSE website.

Check the IPO's opening and closing dates, price band, lot size, and company details before applying.

Step 3: Analyse the Company Before Applying

This is one of the most important steps.

Before investing, check the company's business model, revenue growth, profitability, debt, competition, and management. You should also read the company's offer documents, especially the financial statements, risk factors, and use of IPO funds.

A company may be doing well, but that does not automatically make its IPO a good investment. If the shares are priced too high, the investment may not be attractive.

Step 4: Check the Price Band and Lot Size

Every IPO has a price band and a minimum number of shares you can apply for, called the lot size.

For example, suppose an IPO has a price band of ₹90–₹100 per share and a lot size of 150 shares.

If you apply for one lot at ₹100 per share:

150 × ₹100 = ₹15,000

You would need ₹15,000 for the application, excluding any applicable charges.

Step 5: Apply Through a Supported Platform

You can apply through a participating broker or bank using an eligible method such as ASBA or a supported UPI-based application process.

Under ASBA (Application Supported by Blocked Amount), the application money is blocked in your bank account instead of being transferred immediately to the company.

If shares are allotted, the required amount is debited. Otherwise, the blocked amount is released according to the applicable process.

Step 6: Approve the UPI Mandate

If you apply through UPI, check your UPI app for the payment mandate and approve it before the deadline.

Submitting an application alone may not be enough if the required payment authorisation is incomplete. Check your application status to ensure the necessary steps are completed.

Step 7: Check the Allotment Status

After the allotment process, check your status through the relevant registrar, exchange, or broker platform.

If shares are allotted, they are credited to your Demat account according to the IPO timetable. If you receive no allotment, the blocked amount is released through the applicable process.

Can Students and Unemployed Individuals Apply for an IPO?

Yes. Students and unemployed individuals can generally apply if they meet the applicable requirements and have the necessary account arrangements and funds. A salary slip is not generally required simply to apply as an individual investor.

Can I Use My Parents' Bank Account or UPI ID?

Generally, you should use your own eligible bank account and UPI details. Using another person's account or UPI ID can lead to rejection.

Can a Minor Apply for an IPO?

A minor can hold a Demat account through a guardian, and eligible IPO applications may be possible through supported channels. Confirm the requirements with the broker and bank before applying.

Can I Apply Through Multiple Broker Apps Using the Same PAN?

Multiple applications for the same IPO under the same PAN can lead to rejection as duplicate applications. Using different broker apps does not automatically increase your chances of allotment.

Eligible family members can generally apply separately using their own PAN and account details, subject to the applicable rules.

Does Applying on Day 1 Increase Allotment Chances?

No. Applying on Day 1 does not automatically give you a better chance of allotment than applying on Day 3, provided your application is valid and submitted within the permitted period.

Applying early can help you correct mistakes or resolve payment issues.

Your chances depend on the number of valid applications, the shares available in your investor category, and the applicable allotment rules.

Why Do Some People Get One Lot While Others Get Nothing?

When an IPO is heavily oversubscribed, there may not be enough shares for every eligible applicant to receive one lot.

In such cases, the allotment process may use a lottery-like selection among eligible applicants. Applying for more lots does not guarantee allotment.

What Are Retail, sNII and bNII Categories?

These categories represent different investor groups.

• Retail Individual Investor (RII): An eligible individual applying within the retail investment limit.
• Small Non-Institutional Investor (sNII): An investor applying in the smaller non-institutional category.
• Big Non-Institutional Investor (bNII): An investor applying in the higher non-institutional category.

Check the current IPO documents for the applicable limits and allotment rules.

What Is the Cut-Off Price?

In a book-built IPO, eligible individual investors can select the cut-off option to bid at the final issue price determined within the price band.

This can help beginners avoid bidding below the final issue price, but it does not guarantee allotment.

How to Choose the Right Company for an IPO

Now comes the most important question: which company should you choose?

Do not look only at a company's popularity or social media discussions. Try to understand how the company performs and whether its shares are worth the price being offered.

Revenue Growth

Revenue tells you how much money a company earns from selling its products or services. Check whether revenue has grown over the last few years and whether that growth is sustainable.

Profitability

A company may have high revenue but still struggle to make profits. Check its profits, profit margins, and cash flow.

A loss-making company is not automatically a bad investment, but you should understand why it is making losses and whether it has a reasonable path to profitability.

Debt

Check how much the company owes and whether it can manage its repayments. High debt can create problems if revenue falls or interest expenses increase.

Competition

Understand who the company's competitors are and what makes the company different. Its strengths could include a recognised brand, better technology, strong customer relationships, or products that are difficult to replace.

Management

Review the background of the promoters and management team. Check relevant disclosures about legal cases, related-party transactions, and other risks.

Valuation

This is where many investors make mistakes.

Even if a company is growing quickly, its IPO may not be attractive if the shares are priced too high.

Some useful financial ratios include:

• P/E ratio: How the share price compares with earnings.
• P/S ratio: How the company's valuation compares with revenue.
• ROE: How effectively the company uses shareholders' equity.
• ROCE: How effectively the company uses its capital.
• Debt levels: How much the company owes.
• Operating cash flow: Whether the business generates cash from its normal operations.

Do not depend on just one ratio. Compare the company with similar listed businesses and check its financial performance over time.

A good company is not always a good investment at every price. The price you pay matters.

Is a Highly Subscribed IPO Always Good?

No. High subscription shows strong demand during the IPO period, but it does not guarantee good returns. A popular IPO can still be overpriced, and its share price can fall after listing.

Research the company and its valuation instead of depending only on subscription numbers.

What Is Grey Market Premium (GMP)?

Grey Market Premium, or GMP, is an unofficial indication of the premium at which IPO shares are reportedly traded in an informal market before listing.

Investors often look at GMP to estimate possible listing gains, but GMP is not a guarantee of profit.

It is not an official stock exchange price, and reported figures may be incomplete or unreliable. Market sentiment can also change before listing.

Can an IPO List Below Its Issue Price Despite Positive GMP?

Yes. Even if an IPO has a positive reported GMP, the share can list below its issue price if market conditions weaken or demand changes.

There is no official SEBI or stock exchange GMP figure. Treat GMP as an unofficial indicator, not the main reason to invest.

Why Do IPO Applications Fail Even When Money Is Blocked?

A blocked amount does not necessarily mean that your application is valid. Incorrect details, duplicate applications, payment authorisation issues, or other processing errors can cause problems.

Why Did I Not Receive My UPI Mandate?

• Check that your UPI ID is correct.
• Check your UPI app's pending requests or mandate section.
• Confirm that your bank and payment app support the IPO application process.
• Check your application status through your broker.
• Contact your broker or bank if the problem continues.

Do not wait until the last minute to approve the mandate.

Why Is My Money Still Blocked After No Allotment?

If you receive no shares, the blocked amount should be released according to the applicable process.

If the funds remain blocked beyond the expected timeline, contact your bank and broker with your application number and payment reference.

Is ASBA Better Than UPI?

Both are recognised application methods when used through supported channels. ASBA works through a participating bank, while UPI-based applications use a payment mandate to block funds in the linked bank account.

Choose a method you understand and follow the instructions carefully.

What Should You Do After IPO Allotment?

Getting an allotment is not the final decision. You still need to decide whether to sell your shares or hold them.

When Do IPO Shares Appear in My Demat Account?

Allotted shares are generally credited according to the IPO timetable, often before the listing date. If they do not appear when expected, check the registrar's status and your broker's holdings.

Should You Sell on Listing Day or Hold for the Long Term?

There is no single answer for everyone.

Some investors apply for short-term listing gains, while others invest because they believe the company can grow over several years.

Before deciding, consider:

• The price you paid and the current share price.
• The company's financial performance and growth prospects.
• Its valuation compared with similar companies.
• Your investment goals and ability to handle losses.
• Whether your original reason for investing still makes sense.

Do not assume every IPO should be sold immediately or held forever.

What If the IPO Lists at a Loss?

A negative listing does not automatically mean you should sell or hold. Review your original investment plan and reassess the company's business and valuation.

Do not hold a share only because you want its price to return to your original purchase price.

Why Can an IPO Share Fall After a Few Weeks or Months?

A share price may fall because of weak financial results, valuation concerns, changing market conditions, or lower investor expectations.

Sometimes, restrictions on certain shareholders selling their shares expire, allowing more shares to enter the market. This can increase selling pressure, although it is not the reason for every price decline.

IPO Listing Gains and Tax in India

If you make a profit by selling IPO shares, you may have to pay capital gains tax.

For qualifying listed equity shares that meet the relevant Securities Transaction Tax conditions, the general rates currently include:

• Short-term capital gains: Generally 20% for qualifying transfers.
• Long-term capital gains: Generally 12.5% on qualifying aggregate gains above ₹1.25 lakh in a financial year.

These rates depend on the applicable conditions and may be subject to surcharge and cess. Check the latest information from the Income Tax Department or consult a qualified tax professional.

Common IPO Mistakes to Avoid

If you are a beginner, avoid these common mistakes:

• Applying only because an IPO is popular.
• Ignoring the company's financial statements and risk factors.
• Using another person's bank account or UPI ID.
• Submitting duplicate applications under the same PAN.
• Assuming more lots guarantee allotment.
• Depending completely on GMP.
• Investing money needed for essential expenses.
• Ignoring valuation.

The goal is not just to get an allotment. It is to make an informed investment decision.

IPO Checklist for Beginners

Before applying, ask yourself:

Do I understand the company's business?

Have I checked its revenue, profits, debt, and cash flow?

Have I read the important risk factors?

Do I understand whether the IPO includes a fresh issue or an OFS?

Have I compared its valuation with similar companies?

Are my PAN, Demat, bank, and UPI details correct?

Do I know the lot size and application amount?

Have I completed the required payment authorisation?

Am I prepared for the possibility of no allotment or a listing loss?

Do I have a plan for after listing?

If you cannot explain why a company may be worth its IPO price, take more time to research it before applying.

Frequently Asked Questions About IPOs:

Which Bank or UPI App Is Fastest for IPO Applications?

There is no reliable answer for every investor. Processing depends on the bank, payment app, broker, and IPO process. Apply early and use a supported payment method.

Can a Loss-Making Company Still Be a Good Investment?

It can be worth considering, but you should understand why the company is making losses, whether it has a path to profitability, and whether the valuation reflects those risks.

Why Do Founders or Early Investors Sell Shares in an IPO?

They may want to sell part of their investment after supporting the company for several years. Check the size of the sale and the reasons disclosed in the offer documents.

How Is the IPO Price Decided?

The company and its advisers consider financial performance, growth expectations, valuations of similar companies, market conditions, and investor demand. Investors should still decide whether the offer price is reasonable.

Can I Apply for a US IPO Through an Indian Brokerage Account?

It depends on the broker, the offering, and your eligibility. Indian IPO procedures differ from US IPO procedures, so check the broker's current services and the relevant offering documents.

Conclusion

Investing in an IPO is not just about applying and waiting for allotment. You also need to understand the company, check its financial performance, compare its valuation, and decide what to do after listing.

Read the offer documents, understand the risks, and check whether the company is worth the price being offered.

Financial knowledge helps you ask better questions and avoid decisions based only on hype. You can also explore Directiv to continue building your understanding of finance and make more informed decisions.

Remember: research the company, understand the price you are paying, and never treat an IPO allotment or a positive GMP as a guarantee of profit.

Disclaimer: This article is for educational purposes only and is not personalised investment, legal, or tax advice. IPO rules, application processes, and tax provisions may change. Verify the latest official information before making financial decisions.

Author: CA Umang Mahra

Chartered Accountant | Finance & Investing

I'm Chartered Accountant with an interest in financial markets, business analysis, and long-term investing. Through my writing, I share practical insights on finance and investing to help readers understand businesses better, evaluate opportunities, and make more informed financial decisions.

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