Before an IPO, a company is privately owned by its founders, employees and early investors. In the IPO it sells shares to the public for the first time, and once listing day passes those shares trade freely on an exchange such as the NSE or BSE.
Why companies go public
Two reasons, usually at once. The company raises capital it does not have to repay, funding expansion or clearing debt. And early backers (founders, employees, venture investors who have been locked in for years) finally get a market where they can sell.
That second reason matters to you as a buyer. An IPO where the company issues new shares brings money into the business. An offer for sale, where existing shareholders simply sell their stakes, brings the company nothing at all. The cash goes to the sellers. The offer document says which is which, and the mix tells you something about who the listing is really for.
How to apply
You apply through ASBA, which stands for Application Supported by Blocked Amount, from your bank's net banking or your broker's app. Your money is not debited when you apply. It is blocked in your account. If you get an allotment, the amount is taken; if you do not, the block simply lifts and the money was never gone.
You apply in lots at a price within the announced band, and the issue stays open for a few days. Retail applications up to Rs 2 lakh fall in the retail category, which has its own reserved portion.
What happens when it is oversubscribed
Popular issues attract far more applications than there are shares. When that happens, retail investors go into a lottery: applications are randomly selected, and you either get one full lot or nothing at all.
This has a practical consequence people learn the hard way. Applying for a larger quantity does not improve your odds in the retail lottery, because selection happens per application, not per rupee. Nor does applying on the last day, or the first.
Grey market premium is not information
Before listing, you will see a widely-quoted grey market premium purporting to predict the listing price. It is worth knowing what this actually is: an unofficial, unregulated, entirely opaque number produced by an off-market trading circle, with no disclosure requirements and no enforceable settlement behind it.
It is frequently wrong, it can be moved by people who benefit from moving it, and it says nothing about whether the business is worth owning. Treat it as noise.
The real risk
If a company offers shares at Rs 500 and lists at Rs 650, early allottees see a listing gain. That is the version that gets discussed. Issues also list below their offer price, and there is no mechanism protecting you when they do.
The deeper problem is that an IPO is the one moment when the seller controls the timing, the price band and the narrative, and knows the business far better than you do. Companies list when conditions favour sellers, not buyers. That does not make every IPO bad, but it does mean the odds are not naturally tilted your way.
How to look at one seriously
Read the red herring prospectus rather than the coverage. It is long, but the sections that matter are short: what the money will be used for, the risk factors, the financial history, and whether promoters are selling.
Compare the asking valuation to already-listed peers you can actually check. A company priced at a large premium to established competitors needs a specific reason for that premium, and if you cannot articulate the reason, that is your answer.
Finally, size the position as though it might halve, because sometimes it does. If you want equity exposure without judging individual listings, a mutual fund or index fund gets you there without needing to be right about any single company. When you do sell, remember the profit is taxable. See capital gains.