An initial public offering (IPO) is the process of offering shares of a private corporation to the public in a new stock issuance. This allows a company to raise capital from public investors. Meanwhile, it also allows public investors to participate in the offering. The investor can apply for IPO Stocks in India by filling an online IPO application offered by the stockbrokers and banks. Brokers offer UPI-based online IPO applications and the banks offer both UPI as well as ASBA IPO applications.

Important Terms Related to IPO

Price Band

It is generally the lowest for retail investors (i.e. private individuals). If the price band has been fixed at Rs.50-55 per share, you cannot bid below Rs. 50 or above Rs. 55. It is the price range within which investors can bid for IPO shares. It is set jointly by the company and the underwriter and is different for each investor category, viz. qualified institutional buyers (QIBs), retail investors, and high net-worth individuals (HNIs).

Book Building Process

The process of deciding the issue price for an IPO based on the prices bid by investors. The issue price will be closer to the upper end of the price band if investors have shown strong interest in the IPO and bid high. Otherwise, it will be closer to the lower end of the band.

Offer Date

This is the first date when you can apply for shares in an IPO. It is also known as the opening date of an IPO.

Lot size

The minimum number of shares you can bid for in an IPO. If you want to bid for more shares, it has to be in multiples of the lots size. For example, if the lot size for an IPO is 1500 shares, you have to bid for at least these many. If you want to bid for more, it should be in multiples of 1500, such as 3000 and 4,500.

Minimum Subscription

This is the minimum percentage of IPO shares that retail investors need to subscribe to for an IPO to go through. At present, the minimum subscription is 90%. The company has to refund the entire subscription amount if this 90% threshold is not met.

Floor Price

The minimum price per share that you can bid when applying for an IPO is called the Floor Price. In case of IPOs with a price band, this is the lower limit of the price band.

Issue Price

The price at which shares are allotted to investors once the book building process is over. The issue price is different for each investor category and is generally the lowest for retail investors. It is also called offer price at times.

Cut-off Price

This is the lowest issue price at which shares are allotted in an IPO. It is generally reserved for retail investors. If your bidding price is higher than the cut-off price, the difference will be refunded to you.

Oversubscribed

An IPO is oversubscribed if investors have bid for more shares than offered by the company.

Oversubscription

The excess subscription amount received by the company in case of an oversubscribed IPO is called oversubscription.

Underwriter

An investment bank works closely with the issuing company to manage the IPO. They’re called underwriters. Among their many jobs are deciding the offer price, marketing the IPO, and distributing the shares to investors. The underwriter receives an underwriting fee in return for its services.

Listing Date

This is the date on which IPO shares start trading on the stock exchange. You can sell the shares you received in the IPO and buy the company’s shares if you don’t receive them in the IPO.

The Bottomline

IPO can appear to be a very complicated process first up. But that is only because of its many technicalities. It is quite simple to understand once you are aware of some key IPO terms. This IPO glossary will help you master these terms and make the most out of IPOs.