Guide On Initial Public Offering

Recently, the trend of IPOs in India is constantly increasing. More companies are going public and many investors are showing interest in investing in IPOs. Big and popular names like Groww, Urban Company, Swiggy, Ola Electric, LG, Tata Capital, Lens Kart etc has gone public during 2025 and many of these IPO applications got over subscribed than the original issue size.

This document covers

Meaning of IPO
Advantages of IPO for Companies and Investors
Disadvantages of IPO for Companies and Investors
Most common terms used in IPO
Taxability of IPO

1. Meaning of IPO

IPO means "Initial Public Offering"
IPO means the companies offer its shares to public for the first time and the companies will be listed on stock exchange
IPO is also referred as "going public" or "listing on stock exchange"

2. Advantages of IPO for Companies and Investors

S.No	Companies	Investors
1	Helps in raising large capital for expansion and growth	Helps the investors in earning listing gains as they invest at lower price
2	IPO’s provide liquidity to promoters and early investors	It provides an opportunity for the investors to invest early in fast growing companies
3	IPO’s helps the companies in improving brand image and credibility	Helps the investors in diversifying the investment portfolio
4	IPO’s helps the companies in lowering their cost of capital. Debt Financing will be more costly.	Investors can sell shares at any time, and it also serves as potential for long term wealth creation

3. Disadvantages of IPO for Companies and Investors

S.No	Companies	Investors
1	High cost of launching IPOs. The cost of IPO’s may range between 15-18% of issue size	The investors can also have losses if the stock lists below issue price
2	Increase in compliance and reporting as the public funds are involved.	High Volatility in share price once listed on stock exchange
3	Decrease in control as the promoter’s shareholding will dilute upon IPO	Limited information on company’s long-term performance
4	IPO’s results in loss of privacy and public scrutiny will be increased	Some of the companies shares might be overpriced due to over valuation

4. Most common terms used in IPO

The below terms are most commonly used in IPO

Issue Size: It means the total money the company wants to raise through IPO

Ex: The issue size of most recently listed company Groww (Billionbrains Garage Ventures) is 6,632 Crores

Issue Price: It is the price at which IPO shares are offered to its investors.

Ex: The issue price of Groww is Rs 100. Groww has issued its IPO shares to investors Rs 100

Price Range: It is the minimum and maximum price at which the investor can apply for IPO

Ex: The price range of Groww is Rs 95-Rs 100. The investor can apply for IPO anywhere between Rs 95-100

Listing Price: It is the price at which the IPO shares lists on stock exchange. It is the opening price when the stock gets listed after the IPO.

Ex: The listing price of Groww on stock exchange is Rs 112

Listing Gains: Listing gain is the profit an investor earns when an IPO lists at higher price than the issue price on the stock market.

Ex: The investor of Groww has made a profit of Rs 12 per share on the listing days as the stock listed at Rs 112 which is higher than issue price of Rs 100

Cut-off Price: It means the final price at which shares are allotted to investors. If the investor selects the cut off while applying IPO, he needs to buy the shares at whatever price the company finally decides.

Ex: While applying Groww IPO, if the investors apply at cut off price, they need to buy the same @ issue price of Rs 100 which is decided by the company

Lot Size: It is the minimum number of shares that an investor needs to apply in an IPO

Ex: The lot size of Groww IPO is 150 shares per lot

GMP: GMP means Grey Market Premium. It is the unofficial price at which shares are trading before listing
Allotment date: It is the day on which the company finalizes and announces who has received the shares and number of shares allotted in an IPO

Ex: The allotment date of Groww was 10th Nov 2025

Listing date: It is the day on which the IPO shares gets listed on stock exchange

Ex: The listing date of Groww was 12th Nov 2025

Retail Individual Investor (RII): RII means small, individual investor who applies for shares in an IPO up to Rs 2,00,000. This is for normal investors like salaried, students etc.
Non-Institutional Investor (NII): NII means an investor who applies for IPO for an amount more than Rs 2,00,000. NII includes High Net worth individuals (HNI) and wealthy investors
Qualified Institutional Buyer (QIB): QIB means a large, professional and financial institution that invests in IPOs. QIB’s includes mutual fund agencies, banks etc
Over Subscription: Oversubscription means when more people apply for an IPO than the number of shares available.

5. Taxability of IPO

At the time of Allotment: Allotment of shares is not taxable.
At the time of selling IPO shares: Taxability of IPO shares depends on the period of holding of IPO shares
- Sell within 12 months of listing: It is taxable as short-term capital gain and taxable @ 20% w.e.f 23rd July 2024 (15% before 23rd July 2024)
- Sell on or after 12 months of listing: It is taxable as long term capital gain and taxable @ 12.5% w.e.f 23rd July 2024 (10% before 23rd July 2024). The investor can also claim exemption of Rs 1,25,000 on LTCG.
Non allotment of shares: If IPO is not allotted and amount Is credited back , it is not taxable