IPO Full Form

Heard a lot about IPO, but are you aware of IPO full form.

If yes? Then here we are with the complete information of the IPO and its importance in the stock market. 

IPO seems to be a simple application for investors, but in the actual process, it is something that helps the company to step towards growth. 

Understanding IPO in simple terms is all about creating a masterpiece. Since it isn’t an easy job it is important to consider all the key aspects of the application. 

To make this easy, have you ever seen sculptures in exhibitions or museums or even in huge art galleries? 

What do you think creates such a masterpiece?

Of course, the creativity and hard work of the sculptor give a beautiful shape and pattern to the mud. 

The same goes for the company that is coming with the IPO. The IPO is not only limited to the growth of the company but also to the profits and return of the investors who believe and add value to the issue. 

Let’s try to understand the concept clearly by going through various aspects of IPO such as IPO full form, its meaning, the working process, etc. 

IPO Full Form in Share Market

IPO is also known as the Initial Public Offering. 

As the name suggests, Initial Public Offering is nothing but the beginning of offering private shares of the organization to the general public or as said to the retail investors. 

Initial implies something that is at the onset, at the start, in the beginning.

Public means this particular term has something to do with people, the common public on the roads, you, me, anyone.

Offering implies there is something to offer, to be given. Since we are talking about the stock market, it obviously will be something related to finance.

IPO’s main motive is fundraising in which the organization agrees to offer great returns to its investors during the listing. 

When an organization desires to raise its capital with the objective to boost its growth by either expansion, enhancing brand awareness, or even using these funds for corporate functions, it files for an IPO.

IPO increases the value of the company, exhibiting it as a fundamentally stable firm with great potential of productivity and growth, by which it gains the investor’s trust. 

However, just like the sculptor works hard on the mud or wood to give it a meaningful shape, the organization works hard, abiding by the SEBI guidelines to finally get acceptance to launch its IPO.

Now, this needs to be understood that an IPO is launched by a company, a business – most of the times small or medium, few times it is a big name. Thus, if put in other words, with an IPO, a small business is coming out to the public – to offer a financial product – that is obviously related to his or her company.

Now, when a company is offering something, they will need something in return as well.

Thus, going relatively technical, with an IPO, the business looks to raise monetary funding from the general public in exchange for a share in the business (the financial product!).

The full form of IPO has been kept aptly and with precision so that it is self sufficiently understood.

Now let’s understand it better with the help of an example. 

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IPO Full Form Example

Nonetheless, let’s quickly go through a basic example to understand IPO:

Let’s say you own 2 Pizza Stores. One in Mumbai, another one in New Delhi. You have been running this business for the last 10 years and you have an average brand recall.

Now, you are thinking of expanding your presence to 5 other metro cities in India. However, you do not have that kind of cash with you.

What Options do you have?

Yea, you can go to a bank but that would imply paying off a certain interest on the principal loan.

You can find an investor but can hamper your business vision, in case the frequencies do not match later down the line.

Or you may go with the IPO option where you work with an investment banking firm, get yourself valued, and sell your business shares to the general public.

With the money you raise, you can put that in your business expansion while retail investors buy a specific percentage of stake in your company.

Win-Win!

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How IPO Works? 

The organization, first with the help of underwriters, analyzes the target fund that they wish to raise through IPO. This is done by carefully observing the financial reports of the company in recent years. 

In the process of underwriting, the concerned underwriters set a contract with the organization to prepare a draft that includes the company’s fundamentals, its background, and future targets. 

Not only that, it includes IPO details such as the price band, issue price, fresh issue, offer for sale (OFS), and most importantly the IPO dates, this red herring draft is called the DRHP. 

DRHP is then sent to the SEBI which is the knockout round as we may say. SEBI checks the prospectus and if everything mentioned in it is valid, SEBI approves the IPO proceedings giving the organization a green signal to go ahead and publicly announce its IPO with DRHP.

And then based on the opening and closing dates, the investors prepare themselves to bid for the lots. 

Not to forget, technology has eased this process by which retail investors like us can easily take part in subscriptions and grab the opportunity of earning great returns. 

As we are going to see further, there is only one method to apply for an IPO in the market called the ASBA method.

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ASBA Full Form

Now IPO is applied by the process called ASBA, So when discussing the full form of IPO, it becomes important to take into consideration the full form of ASBA as well. 

ASBA is nothing but the Application Supported by the Blocked Amount. Meaning, when you apply for an IPO a certain amount is blocked in your bank account until the final IPO listing is done. 

Post which, if a bid is accepted by any investor, the amount gets deducted if not, the same amount gets unblocked and in case if the deduction happens, the amount gets refunded. 

Let’s see the step-by-step process to apply for the IPO. 

How to Apply for IPO through ASBA? 

The first and most important thing that the investor needs to apply for the IPO is to have is the demat account with any stockbroker. In case you don’t have a demat account you need to first open a demat account.

• Now, login to your demat account
• Go to the IPO section, where you’ll find the list of past, open and upcoming IPOs.
• Now under the open IPO tab, select the IPO you wish to invest in
• Once you click on the IPO, a new interface will be seen
• This is the IPO application
• Fill in the details such as the lot size (quantity), price.
• Post which you’ll see the amount that you need to have in your bank account to place the order.

At this point comes the most important part, the transaction. For which in today’s scenario UPI is preferred by many in terms of security and seamless transaction process within a few minutes. 

So you see, understanding IPO is a cakewalk, but the actual struggle lies with the organization while preparing the DRHP so that it gets accepted. 

While talking about the struggle on the investors’ side, there is a huge gap between IPO details shared by the organization and IPO details understood by the investors. 

Many people before investing pay no attention to crucial information such as the OFS, fresh issue, and even GMP. 

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Is IPO safe? 

If you’re a beginner, this particular question definitely must have crossed your mind. Here in this section, we’ll try to understand if investing in an IPO is good or bad.

Benefits of IPO 

To know is it profitable and safe to invest in IPO, let’s consider few benefits:

• IPO offers yet another source of potentially good returns to regular traders or investors.
• If you’re a beginner, an IPO can be the entering opportunity into the trading world. You may experience the primary market and get an idea about the actual trading of stocks in the secondary market.
• You can gain high returns in the form of IPO listing gains and further can generate more wealth by holding the IPO shares. 
• Price transparency 
• IPO offers the opportunity to buy a lot at a cheaper price and earn good profits in the end.

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Disadvantages of IPO 

Now along with benefits there are some disadvantages too that are discussed below:

• Going through the entire process of IPO takes a great amount of time and money.
• After going public the organization is then answerable to its shareholders every time they make a decision.
• Even for the investors, an IPO can prove to be quite expensive because of the market lot restrictions (minimum and maximum amount to place an order). 

Now that you have understood the full form and purpose of an IPO, it becomes easy to clearly analyze the company based on the IPO details which you get to see in the DRHP as and when announced by the organization.

However, one more important thing one should keep in mind about an IPO is the personal investment capital. Once you are done with your homework, you’re good to go.

 

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