Key IPO Terms and Concepts (Complete Beginner-Friendly Explanation)

1. IPO (Initial Public Offering)

An IPO is when a private company sells its shares to the public for the first time. This allows the company to raise money from investors. After the IPO, the company becomes a publicly traded company and its shares can be bought and sold on the stock market.

2. Issuer Company

The issuer company is the business offering its shares to the public. This company prepares all documents, sets the price, and works with banks and regulators to launch the IPO.

3. Prospectus (DRHP/RHP)

The prospectus is a detailed document about the IPO. It includes information about the company’s business, risks, finances, promoters, and how the money raised will be used. DRHP is the draft version and RHP is the final version issued before the IPO opens.

4. Shares / Stocks

Shares represent ownership in a company. When you buy even one share, you become a part-owner of the company. Through an IPO, the company offers these ownership units to the public.

5. Face Value (FV)

Face value is the base value of a share decided by the company. It is usually ₹1, ₹2, or ₹10. It does not represent the actual market price; it is only a nominal value used for accounting and calculations.

6. Issue Price

The issue price is the price at which investors buy shares during the IPO. This price can be fixed or within a range depending on the IPO type.

7. Price Band

The price band is a range of prices within which investors can place their bids. For example, if the price band is ₹100–₹120, investors can choose any price between these two limits.

8. Lot Size

The lot size is the minimum number of shares an investor can apply for in the IPO. If the lot size is 50 shares, then you must apply for at least 1 lot (50 shares), and more lots must be in multiples.

9. Fresh Issue

In a fresh issue, the company creates new shares and sells them to the public. The money collected goes directly to the company for business growth, expansion, or debt repayment.

10. Offer for Sale (OFS)

In an OFS, existing shareholders (like promoters or early investors) sell their shares to the public. The company does not get this money; instead, the selling shareholders receive it.

11. Subscription

Subscription shows how many people have applied for the IPO. If the IPO is subscribed 5 times, it means demand is five times more than the number of shares available.

12. Cut-Off Price

Cut-off price means the investor agrees to buy the share at the final price decided by the company. Retail investors often choose this option because it gives them the best chance to get shares.

13. Retail Individual Investor (RII)

RII refers to normal individual investors who apply for IPO shares up to ₹2 lakh. A portion of the IPO is reserved for them.

14. Non-Institutional Investor (NII / HNI)

These are investors who apply for shares worth more than ₹2 lakh. They include high net-worth individuals and big private investors.

15. Qualified Institutional Buyers (QIB)

QIBs are large financial institutions such as banks, mutual funds, and insurance companies. They invest big amounts and their participation increases confidence in the IPO.

16. Underwriters / Lead Managers

Underwriters are banks or financial firms that manage and support the entire IPO process. They help with pricing, documentation, and regulatory compliance.

17. Registrar

The registrar handles IPO records and investor data. They are responsible for share allocation, refunds, and maintaining IPO-related information.

18. Bid / Bidding

Bidding means choosing how many shares you want and at what price (within the price band). Your bid decides your application amount.

19. Oversubscription / Undersubscription

Oversubscription happens when more people apply than the number of shares available. Undersubscription happens when fewer people apply compared to available shares.

20. Issue Size

Issue size is the total value of all shares offered in the IPO. For example, if a company is offering shares worth ₹1,000 crore, the issue size is ₹1,000 crore.

21. Anchor Investors

Anchor investors are large institutions who invest a day before the IPO opens for the public. Their early investment builds trust and confidence in the IPO.

22. Pre-IPO Shares

These are shares held before the IPO by founders, early investors, and employees. These shares often have lock-in periods.

23. Post-IPO Shares

The total number of shares after the IPO is completed. This includes both new shares (fresh issue) and existing shares.

24. Market Capitalization (Market Cap)

Market cap is the total value of the company in the stock market. It is calculated by multiplying the share price with the total number of shares.

25. Listing Date

The listing date is the day when the company’s shares start trading on the stock exchange. From this day, anyone can buy or sell the shares.