By the time an IPO opens for applications, much of the work behind it has already happened. The company has prepared its offer documents, regulators and exchanges have reviewed the issue, the price band has been established and eligible institutions may already have participated as anchor investors.
Here is what happens from the company's decision to raise money from the public to the first day of trading.
The IPO journey at a glance
Company prepares → DRHP → Regulatory and exchange review → RHP and price band → Anchor investors → IPO opens → Allotment → Listing
Each stage tells you something different about the IPO.
Stage | What happens | What you learn |
|---|---|---|
Company prepares | The company appoints the professionals who manage the issue. | Why it is raising money. |
DRHP | The draft offer document is prepared and reviewed. | Business, financials, risks and use of funds. |
RHP and price band | The offer is updated and investors get the bidding range. | What you can bid for. |
Anchor investors | Eligible institutions may participate before the public issue. | Institutional participation. |
IPO opens | Investors submit their bids. | Demand for the issue. |
Allotment | Shares are allocated across investor categories. | Whether you receive shares. |
Listing | The shares begin trading on the exchange. | The market-determined trading price. |
Stage one: the company prepares for the IPO
A company planning to raise capital from the public appoints the professionals who will help manage the issue.
A merchant banker, also called a lead manager or book running lead manager, coordinates important parts of the process. Auditors work on the financial statements, a registrar handles applications and allotment, and lawyers help prepare the disclosures.
The lead manager is involved in due diligence, pricing and other regulatory responsibilities before and after the issue.
Stage two: the DRHP is prepared and reviewed
The company files a Draft Red Herring Prospectus, or DRHP, with SEBI and applies to the stock exchanges where it wants to list.
The DRHP contains information about the company's business, financial statements, risk factors, promoters and how it plans to use the money raised. It does not contain the final issue price.
The draft offer document then goes through regulatory and exchange review. SEBI may raise queries or seek clarifications, while the exchanges assess the company's eligibility for listing. The document is also made available for public comments under the applicable framework.
After reviewing the draft offer document and seeking clarifications or changes where required, SEBI may issue its final observations.
What a SEBI observation letter does not mean
A SEBI observation letter relates to the regulatory review of the disclosures required for the issue. It does not mean that SEBI is recommending the company, guaranteeing the investment, endorsing the valuation or saying that the issue price is fair.
The timing and validity of SEBI observations depend on the applicable framework and issue structure, so the current rules should be checked for the particular issue.
Stage three: the RHP and price band
The Red Herring Prospectus, or RHP, is the offer document used before the final issue price is determined.
For a book-built issue, the RHP can disclose the floor price or price band. The final prospectus reflects the final issue price after the book-building process.
Most large IPOs use book building. Instead of fixing one price from the start, the company sets a price range and investors place bids within that range. Demand then helps determine the final issue price.
The price band is announced before the issue opens. The applicable framework sets limits on how wide the price band can be, so the cap cannot be less than 105% of the floor price or more than 120% of the floor price.
For example, a price band of ₹100 to ₹105 gives investors a range within which they can bid.
Fresh issue vs offer for sale
This is one of the most important distinctions to understand.
Fresh issue: The company creates new shares and the money raised goes to the company.
Offer for sale (OFS): Existing shareholders sell their shares and the money goes to those selling shareholders rather than to the company.
Many IPOs contain both. The offer document tells you how much of the issue is a fresh issue and how much is an OFS.
Companies also provide an abridged version of the offer information so investors can access key details without starting with the full prospectus.
Stage four: anchor investors
Before the public issue opens, eligible institutional investors may participate as anchor investors.
Anchor investors are allotted shares before the issue opens to the public, under the applicable rules. The rules specify the minimum application size, the portion of the QIB allocation that can be allotted to anchors and the applicable lock-in.
For issues following the standard framework, an anchor investor applies for at least ₹10 crore and the anchor portion can be up to 60% of the QIB portion. Under SEBI's 2025 amendment, 40% of the anchor portion is reserved: one-third for domestic mutual funds and the remainder for life insurance companies and pension funds, subject to valid bids. Any unsubscribed part of the insurance and pension fund reservation can be allocated to mutual funds.
Anchor investors are also subject to lock-in requirements. The current framework provides for different lock-in periods for portions of the anchor allocation, including 30-day and 90-day periods.
Anchor allocations can show which eligible institutions participated and how much they committed. That can provide context when reading an IPO, but anchor participation is not a recommendation or a guarantee of listing performance.
Stage five: the IPO opens
A public issue generally remains open for at least 3 working days and no more than 10 working days, subject to the applicable rules. If the price band is revised, the issue period is extended as required, while remaining within the prescribed maximum.
Investors apply through the ASBA process, which stands for Applications Supported by Blocked Amount.
Instead of immediately debiting the application amount from your bank account, the amount is blocked. If shares are allotted, the amount required for those shares is debited. Any amount not required is unblocked.
₹2 lakh retail limit vs ₹5 lakh UPI limit
These are not the same thing.
The retail category is based on the application amount. An individual application of up to ₹2 lakh falls within the retail category under the standard framework.
An individual investor can use UPI for eligible IPO applications up to ₹5 lakh. But an application above ₹2 lakh is not treated as a retail application simply because it is within the ₹5 lakh UPI limit. Applications above ₹2 lakh and up to ₹5 lakh fall under the non-institutional category.
In simple terms: ₹5 lakh UPI limit ≠ ₹5 lakh retail limit.
For public issues where the application amount is up to ₹5 lakh, individual investors applying through the specified intermediaries are required to use UPI under the current framework.
You should also avoid submitting multiple applications for the same IPO using the same PAN. Multiple applications under the same PAN can be rejected.
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Typical allocation framework for a standard book-built mainboard issue
Category | Who it includes | Typical allocation |
|---|---|---|
Qualified institutional buyers (QIBs) | Eligible institutional investors | Up to 50% |
Non-institutional investors (NIIs) | Applicants outside the retail and QIB categories | At least 15% |
Retail individual investors | Individuals applying within the retail limit | At least 35% |
These percentages apply to companies that meet SEBI's profitability-based eligibility criteria. Companies that do not meet those criteria must allocate at least 75% to QIBs, with retail allocation capped at 10%.
These are the typical allocation levels under the applicable framework for a standard book-built mainboard issue. The exact structure can vary depending on the issue and applicable rules. Current SEBI offer documents continue to reflect the familiar QIB/NII/retail framework, subject to the specific issue structure.
The NII portion is further divided by application size. Under the applicable framework, one-third of the NII portion is allocated to applications above ₹2 lakh and up to ₹10 lakh, while two-thirds is allocated to applications above ₹10 lakh, subject to the applicable rules. If either sub-category is undersubscribed, the unsubscribed portion can be allocated to applicants in the other sub-category.
Stage six: how allotment works
This is where your investor category starts to matter.
For retail investors, the basis of allotment is designed around the minimum bid lot, subject to availability. In a heavily oversubscribed retail category, a computerised draw of lots may be used to determine which eligible applicants receive the minimum lot.
This means that an investor applying for one lot and an investor applying for several lots can end up with the same minimum allotment, or no allotment at all, in a heavily oversubscribed retail issue. Applying for more lots does not simply multiply your chances of receiving shares.
QIB allotment generally follows the applicable proportionate allocation framework. NII allotment depends on the relevant NII sub-category and the applicable allocation rules.
Stage seven: allotment and unblocking
After the basis of allotment is finalised, the shares are credited to successful applicants' demat accounts.
If you receive fewer shares than you applied for, only the amount required for the allotted shares is debited. The remaining blocked amount is released.
You can also verify your IPO bid and allotment information through the exchange or the registrar's process. NSE's IPO bid-verification facility, for example, makes uploaded bid details available for investors to check and also provides allotment information supplied by the registrar.
Stage eight: listing
What does T+3 mean?
T+3 simply means the IPO shares are listed within three working days after the IPO closes. Here:
T = the IPO closing day
T+1 = the next working day
T+3 = the listing day
Under the current framework, the applicable listing timeline is based on this T+3 process.
IPO price ≠ listing price
The IPO price is the price at which shares are allotted in the public issue. The listing price is the price at which those shares begin trading on the exchange. They can be different.
On listing day, the opening price is discovered through the exchange's pre-open mechanism based on the orders received before regular trading begins.
The stock can therefore open above the IPO price, below it or at the IPO price. Nothing guarantees where it will trade.
A worked example
Suppose an IPO has a price band of ₹100 to ₹105 and a lot size of 140 shares. One lot at the top of the price band costs 140 × ₹105 = ₹14,700.
Now compare two applications.
13 lots
13 × ₹14,700 = ₹1,91,100. This remains within the ₹2 lakh retail application limit.
14 lots
14 × ₹14,700 = ₹2,05,800. This exceeds the retail-category limit, so the application would be considered under the applicable non-retail/NII category rather than the retail category.
That change matters because the allotment rules are different between the categories.
There is no single universal rupee amount that applies as the minimum application for every IPO. The minimum application depends on the particular IPO's price band and lot size.
What does bidding at cut-off mean?
Eligible retail individual investors can generally bid at cut-off, which means accepting whatever final price is determined within the price band. The cut-off option is available to eligible retail individual investors; QIBs and NIIs do not have this option.
Check the numbers before you bid. Price band and lot size decide which investor category your application falls into. Log in to Hem Nxt to see open IPOs and work out your application amount before you apply.
What should you actually look for in an IPO?
Understanding the process is useful, but the offer documents are where the important details sit. Start with four questions.
Why is the company raising money?
Look at the stated objectives of the issue. The company should explain what it intends to do with the proceeds.
How much is a fresh issue and how much is an OFS?
A fresh issue raises new capital for the company. An OFS gives existing shareholders an opportunity to sell their holdings, so those proceeds go to the selling shareholders instead.
What are the major risks?
Read the risk factors rather than relying only on the company's business story.
How will the money be used?
Check whether the company plans to use the proceeds for expansion, debt repayment, working capital or other stated purposes. The DRHP and RHP are important sources for this information.
If you are just starting out
An IPO is not automatically a discount. It is a company raising money from investors through a public issue at a price determined through the applicable issue process.
Read what the money is being raised for. If a large part of the issue is an OFS, existing shareholders are selling shares and that part of the proceeds goes to those shareholders rather than to the company.
Know your investor category before deciding how much to apply for. Crossing the retail application limit can change the category in which your application is considered and, with it, the way allotment works.
High subscription numbers, anchor participation or a premium over the issue price do not by themselves establish that an IPO is attractively valued.
And treat SEBI's observation letter for what it is: part of the regulatory review of the issue disclosures. It is not an endorsement of the company, its valuation, its issue price or its future performance.
Common questions
What happens between the DRHP and the IPO opening?
The offer document goes through regulatory and exchange review. The company responds to queries or required changes, updates the offer documents, establishes the price band and completes the remaining issue preparations before the IPO opens.
What is the difference between the IPO price and the listing price?
The IPO price is the price at which shares are allotted in the public issue. The listing price is the price at which the shares begin trading on the exchange. They can be different.
Does an anchor investor guarantee a good IPO?
No. Anchor participation shows that eligible institutions participated before the public issue, but it does not guarantee listing performance or future returns.
Why can I receive no shares even after applying?
In an oversubscribed retail category, allotment is based on the applicable basis of allotment and the shares available. A larger application does not automatically guarantee a larger allotment or better odds.
Can I apply for more than ₹2 lakh?
Yes. An individual can apply for more than ₹2 lakh, but the application will fall outside the retail category and be considered under the applicable non-retail/NII framework.
What does OFS mean for the company?
In an OFS, existing shareholders sell their shares and the proceeds go to those shareholders rather than to the company.
The simplest way to think about an IPO
An IPO is a process, not just an application.
Before you can bid, the company has to prepare and disclose information, SEBI and the exchanges review the issue, the price band is established, eligible institutions may participate as anchors, investors submit bids, shares are allotted according to the applicable category rules, and only then does the stock begin trading.
Understanding that sequence makes it easier to understand what you are actually applying for.
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Rates and regulatory rules mentioned in this article should be read as applicable to the framework in force at the time of publication. Regulatory requirements can change, so the latest offer documents and applicable SEBI/exchange rules should be checked before relying on a specific numerical requirement.
Risk disclosure
Hem Finlease Private Limited, SEBI Registration No. INZ000167734. Hem Securities Limited, SEBI Reg. No. IN-DP-568-2021, CDSL: 17700/17701.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI and membership of recognised stock exchanges do not guarantee the performance of the intermediary or provide any assurance of returns to investors.
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