Every few months, a new IPO announcement generates buzz across financial news channels and investor WhatsApp groups. Yet despite the excitement, many first-time investors still aren’t entirely sure how to invest in an IPO properly, or what should guide their decision beyond the hype. This guide walks through the complete process, step by step. For the current limits, dates and rules, check each issue’s official offer document or contact our IITA experts.
What is an IPO?
An IPO, or Initial Public Offering, is the process through which a private company offers its shares to the public for the first time and becomes a publicly listed company on the stock exchange. Investing at this stage lets you apply for shares before they begin trading on the exchange, though it carries specific risks that differ from buying shares of an already-listed company.
Why investors are interested in IPOs
Many investors follow market news closely and are drawn to IPOs as a way to gain early exposure to promising companies. But understanding how to invest in an IPO responsibly, rather than simply chasing listing-day gains, is what separates informed investors from speculative ones. If you are new to markets, start with how the stock market works.
Step-by-step: how to invest in an IPO
Step 1: Stay updated on upcoming IPOs
Track upcoming IPO announcements through your broker’s app, the NSE and BSE websites, or financial news platforms. Companies announce their IPO dates, price band and lot size before the issue opens. Always confirm these details in the official offer document, not only in a news article.
Step 2: Read the Red Herring Prospectus (RHP)
Before deciding how to invest in an IPO for any specific company, read its Red Herring Prospectus, a detailed document describing the company’s business model, financials, risks and reasons for raising capital. You can find it on the stock exchange and SEBI websites. This is the most important research step, yet it is often skipped by investors chasing hype. Note that SEBI’s review of an offer document is not an approval or endorsement of the company or its price. It is your job to judge the risks.
Step 3: Evaluate the company’s fundamentals
Just as with any stock, assess the company’s revenue growth, profitability, debt levels and competitive position within its industry. A popular or highly publicised IPO does not automatically mean strong fundamentals.
Step 4: Check the valuation
Compare the IPO’s price band with the company’s financial metrics and, where possible, with similar listed companies in the same sector. An IPO priced aggressively relative to its fundamentals may offer limited upside even if the company itself is solid.
Step 5: Make sure you have a demat account
You need an active demat account to apply for an IPO, because allotted shares are credited electronically to it. If you do not have one yet, read how to open a demat account and the difference between a demat and trading account.
Step 6: Apply through UPI or net-banking ASBA
In India, IPO applications use the ASBA (Application Supported by Blocked Amount) principle: your application amount is blocked in your bank account instead of being debited, and it is debited only if you are allotted shares. There are two main routes, and you choose one:
- UPI route, through your broker’s app. Choose the IPO, category, number of lots and bid price, and enter your UPI ID. You then receive a mandate request in your UPI app. Approve it before the deadline in the issue details, or your application will not be completed. Approving the mandate authorises your bank to block the amount.
- Net-banking ASBA route, through your bank. If your bank offers it, log in to net banking, go to the IPO or ASBA section, and fill in your demat and bid details. The bank blocks the amount when you submit.
Both routes block your money rather than debiting it. Whether UPI is available, any limit on the amount you can apply for through it, and the deadlines for approving a mandate are set by the regulator and the exchange. They can change, so check the current rules in the offer document, your broker’s IPO page or with our IITA experts.
Step 7: Select the right category and lot size
IPO shares are typically divided into categories such as Retail Individual Investors, Non-Institutional Investors and Qualified Institutional Buyers. Most beginners apply as retail investors, bidding for the lot size specified in the issue details. The limits for each category are set by SEBI’s rules and the offer document, so check them before you bid.
Step 8: Track the allotment status
After the subscription period closes, allotment is finalised, often by lottery if the issue is oversubscribed. SEBI sets a timeline, counted in working days from the issue closing date, for completing allotment, refunds and listing. The offer document shows the exact dates for each issue. You can check your status on the registrar’s website or your broker’s platform.
Step 9: Monitor the listing
If shares are allotted, they are credited to your demat account before the listing date. On listing day you can sell or hold, based on your own view of the company.
How to invest in an IPO: allotment, refunds and blocked funds
- If you are allotted shares, the amount for those shares is debited from your bank account, and any balance is released.
- If you are not allotted shares, the blocked amount is released. Check your bank statement or UPI app to confirm, and contact your broker or bank if it is not released within the time the issue details give.
- If you apply and your mandate or bid is rejected, you may not be able to re-apply once the issue closes. Check the status of your application well before the deadline.
Key risks to understand before you invest
Understanding how to invest in an IPO also means understanding the risks involved:
- Oversubscription risk: popular IPOs often receive far more demand than available shares, so allotment is not guaranteed even if you apply.
- Listing volatility: share prices can be highly volatile in the first days or weeks after listing, sometimes well above or below the issue price.
- Limited trading history: unlike established stocks, new listings have little price history, which makes valuation harder.
- Hype-driven decisions: strong marketing and media buzz do not always match a company’s long-term fundamentals. Grey-market prices are informal and unreliable, so do not treat them as a guide.
See also our guide to risk management in trading.
Common mistakes first-time IPO investors make
- Applying based only on media hype, without reading the prospectus
- Ignoring valuation and focusing only on brand recognition
- Expecting guaranteed listing-day gains, which do not always happen
- Applying with money needed for other priorities, since allotment and listing outcomes are uncertain
- Repeating the common mistakes beginners make without a plan
Should you hold or sell after listing?
This depends on your original reason for applying. If you applied because you have confidence in the company’s long-term fundamentals, you may decide to hold beyond listing day. If you were hoping for a short-term listing gain, set a clear target and exit plan before you apply, to avoid emotional decisions once the stock lists. No outcome is guaranteed either way.
Final thoughts
Learning how to invest in an IPO properly goes far beyond clicking “apply” on an exciting announcement. It involves real research into the company, understanding the application routes, and realistic expectations about allotment chances and post-listing performance. Approach IPO investing with the same discipline you would apply to any other investment decision. If you are building your knowledge, our 30-day learning plan is a gentle place to start.
How to invest in an IPO: frequently asked questions
What is the first step in learning how to invest in an IPO?
Read the company’s Red Herring Prospectus, which sets out its business, financials and risks, before deciding whether to apply.
Do I need a demat account to invest in an IPO?
Yes. A demat account is needed because allotted shares are credited electronically to it.
Is IPO allotment guaranteed if I apply?
No. For oversubscribed issues, allotment is often decided by a lottery, so you may receive nothing even if your application is valid.
What is ASBA, and how is it used for IPO applications?
ASBA means Application Supported by Blocked Amount. Your application amount is blocked in your bank account instead of being debited, and it is debited only if you are allotted shares. You can apply through the UPI route in your broker’s app, or through your bank’s net banking.
Is UPI compulsory for IPO applications?
No. Many investors use the UPI route through a broker, but net-banking ASBA is the alternative if your bank offers it. Check the current rules and your broker’s options.
Should beginners apply for every IPO?
No. Evaluate each IPO on its fundamentals and valuation, instead of applying to every issue because of hype.
Learn more with IITA
IITA’s courses cover risk management, technical analysis and an introduction to exchange-traded markets, with live market examples, simulated practice and doubt-clearing sessions, in classroom and online batches. For the current rules that apply to IPO applications, contact our IITA experts or visit our course page.
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Disclaimer: Stock market trading involves financial risk. This article is for educational purposes only and is not investment advice or a recommendation to buy or sell any security. It encourages readers to learn before they trade. Figures, rules and rates mentioned may change as per SEBI and other regulators. Check the latest figures on the official SEBI, exchange or other regulator websites, or consult experts.