Initial public offering

IPO or initial public offering is the process of offering shares of a private organization to the public for the first time. It allows a company to raise equity capital from public investors. It allows companies to obtain capital by offering shares through the primary market.

In short, a company becomes 'public' when it starts selling its shares in the market for the first time.

Companies must meet SEBI requirements to hold an IPO. It provides the company with access to raising funds. IPO shares of a company are priced through underwriting due diligence. IPOs are often cheap. This can give a company a lower cost of capital for both equity and debt.

Startup companies or companies that have been in business for decades can decide to go public through an IPO. Companies typically issue an IPO to raise capital to pay off debts, fund growth initiatives, raise their public profile, or to allow company insiders to diversify their holdings or create liquidity by selling all or a portion of their private shares as part of the IPO.

Before investing, be sure to do your own due diligence. This task can be challenging because of the lack of readily available public information on a company that is issuing stock for the first time. However, you should always refer to the issuing company’s preliminary prospectus, also known as a "red herring." This document, provided by the issuer and lead underwriter, will include information on the company's management team, target market, competitive landscape, the company's financials, who is selling shares in the offering, who currently owns shares, expected price range, potential risks, and the number of shares to be issued.

If you are considering investing in an IPO, it is also important to avoid getting swept up in the hype that can surround a promising young company. Many companies have debuted with high expectations, only to struggle and go out of business within a few years.

The primary market is a platform used by organisations to issue their shares to the public through an IPO. It is the first time the shares of that company are issued to the public. When individuals invest in IPO shares, they purchase them directly from the company in the primary market and receive them in their demat account.

The secondary market is where those issued securities/shares are listed on stock exchanges. After completing the IPO process, the shares are traded among individuals on stock exchanges using their trading accounts.