IPO - Initial Public Offerings

Initial Public Offering (IPO) is the process where private companies sell their shares to the public. The IPO process is done to raise equity capital from the public investor. A private company becomes a public company through the IPO process. IPO in India creates an opportunity for small investors to earn potential returns on their investments.

Investing in an IPO can be a wise move only if you are a well-informed investor. As an investor, you should know that not every new IPO is a great opportunity. Benefits and risks go hand-in-hand in investing. Before you invest in an IPO, it is important to understand the IPO details.

What is an Initial Public Offering (IPO)?

In an Initial Public Offering, a private company or corporation sells a portion of its stake to an investor in order to become public. The purpose of an IPO is to infuse new equity capital into the firm, facilitate easy trading of existing assets, raise future capital or monetize stakeholder investments.

A prospectus describing the first sale of shares is available to institutional investors, high net worth individuals, and the public. A prospectus describes the upcoming IPO details. Once the IPO has been completed, the firm’s shares will be listed on the open market. A minimum free float is imposed on the shares by the stock exchange, both in absolute amount and as a percentage of the total share capital.

How Does an IPO Work?

When a company decides to sell its shares on a stock exchange, it begins the IPO process. After that, an audit must be conducted, taking into account all aspects of the company’s financials. If everything is in order, the company has to prepare a registration statement and file it with SEBI (Securities and Exchange Board of India).

Following that, the stock exchange that the company wants to list on will review the application, and it will either be accepted or rejected. For IPO listing, the underwriter helps the company on how many shares to issue and at what price if it is approved. Underwriters are usually banks, and their job is to start a book building process to find investors to subscribe to the IPO. Shareholders will receive a prospectus containing information about the shares, where they’ll be listed and the potential opening price. As part of the IPO, non-private investors have the opportunity to purchase shares of the company in a primary market. Before, only institutional investors were able to participate fully in IPOs, while retail investors could only participate in the secondary market when shares were exchanged.

Who is Eligible to Apply for an IPO?

As an individual investor, you are required to fulfill basic eligibility criteria to apply for an IPO. They are as follows:

• An investor needs to be an adult (18+years of age)
• According to the laws of the country, investors should be capable of entering into a legal contract.
• Investors are required to have a valid Demat account. If an investor sells their stocks on the listing, they would additionally need a trading account. Thus, it is advisable to open a trading account along with the demat account.
• Any investor who is interested in IPO shares has to mandatorily hold a PAN card issued by the Income Tax department. A PAN card is a necessary proof of document to surpass the IPO eligibility criteria.

Steps to Apply for an IPO Online from Kotak Securities

Kotak Securities offers a simple and quick way to apply for an IPO online. Below are a few steps to apply for an IPO in India:

Step 1: Visit the Kotak Securities website and log into your trading account.

Step 2: After logging in, click on the “invest” option and go to the IPO section.

Step 3: Select the IPO from the list and click the “buy” option. You can also check the upcoming IPO calendar.

Step 4: Set the bid price and lot. And place order option.

Step 5: Approve the mandate.

Step 6: In the IPO section, check the IPO status. If it shows “Processed”, it means your IPO application request has been processed successfully.