Ram and Lakhan were travelling to their workplace when suddenly Lakhan saw an advertisement in the newspaper about a company’s initial public offering (IPO). Given below is the discussion which took place between them until they reached office.

Lakhan: This is another advertisement of IPO that I have seen in recent months. What is an IPO?

Ram: Initial public offering or IPO is a process through which companies raise capital by issuing shares in the primary market. IPOs can be issued either by an old or new company that wishes to be listed on the stock exchange.

Lakhan: I see. But what’s the primary reason for an IPO?

Ram: The primary objective behind an IPO is to raise money by issuing shares to the public. Companies raising money through the IPO route may use it for expansion in operations in the long run. Since it’s is the first public invitation in the stock market, hence it’s known as IPO.

Lakhan: Got your point. What’s the process of IPO?

Ram: Companies willing to take the IPO route to raise capital must be registered with the Securities and Exchange Board of India (SEBI). Firms must submit the relevant documents and only when SEBI is convinced and gives a go ahead, can a firm go ahead with IPO. At the same time, during evaluation of the documents and application, firms need to prepare prospectus stating that SEBI’s approval is pending.

Lakhan: What after SEBI approves the application?

Ram: Once approved, the company must determine the price of the share along with the number of shares it plans to issue.

Lakhan: Alright. Ram, can you tell me the process of buying shares from an IPO?

Ram: Sure. If you wish to buy shares from an IPO, you need to access the application form. You can get it either from a broker or a distributor. Fill your personal bank and demat account details along with the investment amount. The shares are issued to you within 10 days of the closing of the IPO.

Lakhan: I get it. Are there any other things to consider while subscribing for an IPO?

Ram: Yes. There are certain things to consider. You need to understand the market dynamics and read the prospectus thoroughly. Take special note of the financials as it will help you know the amount of money the company intends to raise. Also, find out how the firm intends to use the money raised.

Lakhan: Alright. I feel doing all these will help one make an informed choice. Also, I guess getting listed in the stock exchange adds to a firm’s brand name.

Ram: Yes Lakhan. You are spot on. By the way, we have reached office.

Lakhan: Yes Ram. Thank You for all the information related to IPO. I am planning to buy shares of this firm’s IPO.

Ram: Okay Lakhan. All the best!

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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