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IPO

when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer’s securities.

When private companies i.e. companies that are wholly owned by their promoters, invite the public to subscribe to their shares, this issue of shares is called an Initial Public Offering (IPO). The shares issued could be in the form of fresh equity and/or the promoters sell a portion of their equity to the public.

IPO - IPO PRICING
How is the issue price decided on? A company that is planning an IPO appoints lead managers (SEBI-registered merchant bankers who are responsible for helping the company execute the IPO) to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an IPO can be determined – either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building.

IPO - IPO FUNDING

About IPO funding

If you wish to take a loan in order to buy shares in an IPO, you can do so from banks and finance companies. They provide finance for subscribing to shares in the public / rights issues of reputed companies that are/will be listed as per the listing requirements of NSE / BSE.

In order to avail of this loan you will be charged interest for the period for which you utilize the funds, i.e. from the date of closure of the issue till the date of the refund of money (in case of no shares being issued) or the repayment of the loan. You will also be charged a processing fee that is either a small fixed amount or a percentage of the amount funded. Lastly, the loan amount offered is usually about 50 per cent of the total value of your application bid and you will be required to put up the balance (your contribution is called margin money) of the application money.