When you decide to buy a new car, you don’t just look at the shiny color; you check the mileage, the engine power, and the safety features. In the stock market, the Red Herring Prospectus (RHP) is the User Manual for a company going public. It is a thick document (often 400+ pages) that contains everything from how the company makes money to who is leading it.

In 2026, reading the RHP is no longer just for experts. SEBI has made it mandatory for companies to highlight the most important parts clearly. While it looks intimidating, you only need to focus on a few key sections to know if an IPO is a Jackpot or a Trap. Here is the simple, non-financial guide to things you must find in an RHP before you invest.

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The Objects of the Offer (Where is your money going?)

This is the most important section. It tells you exactly why the company is raising money from you.

Fresh Issue: This money goes directly into the company’s bank account to be used for things like building new factories, buying technology, or paying off high-interest debt.
Offer for Sale (OFS): This money goes to the old owners who are selling their shares. The company itself gets ₹0 from an OFS.
The Goal: Look for a high percentage of Fresh Issue meant for growth. If most of the money is just to pay off debt or let founders exit, be careful.

Risk Factors (The Honest Truth)

The RHP is the only place where a company is legally forced to tell you everything that could go wrong.

Internal Risks: Things the company can control, like a strike in their factory or a major court case against the CEO.
External Risks: Things they can't control, like a change in government tax rules or a global shortage of raw materials.
Smart Tip: Don't just read the generic risks (like competition is high). Look for specific risks that could shut down their business tomorrow.

Basis for Issue Price (Is it worth it?)

This section explains how the company decided its price.

Peer Comparison Table: In 2026, every RHP must include a table comparing the IPO company with its competitors (peers) that are already on the stock exchange.
Look for the P/E Ratio: If the company is asking for a P/E of 60 but its bigger, better competitor is trading at a P/E of 30, the IPO is likely Overpriced.

Our Business (The Engine)

This is where the company explains its Secret Sauce. It describes what they sell, who their customers are, and why they are better than others.

Revenue Mix: Check where their money comes from. If 80% of their income comes from just one client, the business is very risky.
Market Share: Are they the leader in their field, or just a small player struggling to survive?

Financial Information (The Health Report)

This section contains the Balance Sheet and Profit & Loss statements for the last 3 to 5 years.

The Trend: Don't just look at the latest year. Check if the revenue and profits are growing steadily.
Debt Levels: Look at the Total Borrowings. If the company’s debt is growing faster than its profit, it’s a red flag.

Comparison: RHP vs. Abridged Prospectus (2026)

Feature

Red Herring Prospectus (RHP)

Abridged Prospectus

Detail Level

100% Comprehensive (Deep Dive).

Summary (The Cheat Sheet).

Length

400 - 600 Pages.

5 - 10 Pages.

Best For

Serious research and long-term bets.

Quick check before bidding.

Accessibility

Online (SEBI/NSE/BSE websites).

Attached to every application form.

Management and Promoters (The Drivers)

In 2026, Founder Integrity is a big deal. The RHP lists the background, education, and experience of the Directors and Promoters.

Criminal Cases: Companies must disclose if there are any criminal proceedings or serious litigations against the management.
Experience: If a software company is being run by someone who has only ever done real estate, you should ask why.

Dividend Policy (The Reward)

If you are someone who loves a steady income, check this section. It tells you if the company has a history of paying dividends and if they plan to pay them in the future.

Note: Many growing companies don't pay dividends because they want to reinvest all the money back into the business. This is normal and often a good sign of growth!

Frequently Asked Questions (FAQs)

Why is it called a Red Herring?

It's called Red Herring because it contains a disclaimer (usually in red ink on the side) stating that the document is not yet final because the Final Price is not mentioned.

Where can I download the RHP for free?

You can find it on the SEBI website under the 'Filings' section, or on the websites of the NSE and BSE. Your broker app (like Motilal Oswal) will also have a direct link.

Does SEBI Approve the RHP?

No. SEBI only reviews it to ensure all the facts are disclosed. SEBI doesn't guarantee that the company is a good investment; that is for you to decide.

What is the difference between DRHP and RHP?

The DRHP (Draft) is the first version sent to SEBI for checking. The RHP is the final version released to the public just before the IPO opens.

Should I read the whole 500 pages?

No! Most retail investors only need to read the Summary, Risk Factors, and Objects of the Offer. These are usually found in the first 50 pages.

What is the Issue Size mentioned in the RHP?

It is the total amount of money the company is trying to raise (e.g., ₹500 Crores). It is divided into Fresh Issue and Offer for Sale.

Can a company change the RHP after it is published?

Only if there is a major error or a big change in the company. If they make a big change, they might have to cancel the IPO and file a new RHP.

What are Litigations in an RHP?

These are legal cases. Every company has some small cases, but you should look for Material Litigations cases that are so big they could bankrupt the company if they lose.

Why are the financials in an RHP audited?

To ensure the company isn't lying about its profits. These are checked by independent Chartered Accountants before the RHP is filed.

Is the Abridged Prospectus enough?

For a quick decision, yes. But if you are planning to invest a large amount (like in the HNI category), you should definitely skim through the full RHP.

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