If you’ve ever followed stock market news, chances are that you’ve heard of companies coming up with IPOs. Have you ever wondered what it is and what might the full form of IPO be? If you have, then this article is for you. Here, we’re going to not only take a look at what the acronym IPO stands for but also the reason why companies choose to come up with an IPO. So, let’s begin.
IPO is an acronym that stands for Initial Public Offering. It is a process that a company undergoes to issue its shares to the public. By selling its shares to the general public, the company receives funds in return, which it can use to further its business objectives. An IPO is one of the easiest and most cost-effective ways for a company to raise funds from the public.
Now that you know what the full form of IPO is, let’s quickly take a look at the process itself. The IPO process involves multiple steps and compliance with various rules and regulations set by the Securities and Exchange Board of India. Only upon completion of all the legal formalities is a company allowed to issue its shares to the general public. Here’s a quick look at the different steps involved in the IPO process.
This is the first step that a company wanting to issue an IPO takes. A book-running lead manager is an entity that is responsible for ensuring that the company going through the IPO process is in compliance with all the rules and regulations. The BRLM also helps with the creation of the Draft Red Herring Prospectus (DRHP).
Once the Draft Red Herring Prospectus has been created with the help of the BRLM, the company files the same with the Securities and Exchange Board of India. The DRHP is the most important document of an IPO. It contains all the key information related to the company issuing its shares to the public.
Once the DRHP and all other relevant documentation are filed, the SEBI goes over the same thoroughly. In the case of any mistakes or discrepancies, the company is intimated about the same and the SEBI sends it back for rectification. If all the necessary documentation is in order, the necessary approval is accorded.
Once the SEBI approves the IPO, the next step that the company takes involves applying to various stock exchanges for the listing of its shares. A company may choose to list its shares on just one or both the premier stock exchanges of India - the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Upon receiving the necessary approval from the stock exchanges, the company proceeds to market its IPO. Marketing is done through advertisements and other mediums of communication in a bid to encourage investors to invest in the upcoming IPO.
Once the necessary marketing is done to create a buzz, the issue is finally thrown open to the public for subscription. Generally, an IPO stays open only for a few days. Once the issue closes, the company in consultation with the BRLM announces the cut-off price and proceeds to allot the shares to the investors who bid on or above the cut-off price.
With this, you must now not only be aware of the full form of IPO but also a brief overview of the entire process. An IPO is a great way for companies to raise funds. However, it can also be hugely beneficial to investors as well as they get to participate in the wealth creation process early on.
That said, if you wish to invest in upcoming IPOs, make sure to first have a demat and trading account. You can visit Motilal Oswal to open a demat account online through a simple and hassle-free process.
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