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The term IPO stands for Initial Public Offer and it is in practice in the primary market of shares and stocks. It is the first issue of shares of a company to the public. An Initial Public Offering (IPO) is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. In short we can say that IPO is the medium through which a company raises equity capital from the public. By this process it also gets listed on the stock exchange.

Life cycle of an IPO
There are eight major steps in the life cycle of an IPO such as;

-IPO process initialization
-Pre Issue Role - Part 1
-Prospectus Review
-Pre Issue Role - Part 2
-Bidding for the public issue
-Price Fixing
-Processing IPO Applications
-Stock Listing

IPO process initialization - Issuing Company
Lead managers are appointed as book runners
Registrar to the issue are appointed
Syndicate members are appointed

Pre Issue Role - Part 1 - Lead Manager's
Draft offer prospectus document for IPO is prepared
Filing of draft offer prospectus with SEBI.
Road shows are conducted

Prospectus Review - SEBI
Reviewing draft offer prospectus by SEBI
If any changes are required in the document it is sent back
The draft offer prospectus becomes Offer Prospectus after the approval of SEBI

Pre Issue Role - Part 2 - Lead Manager
Submitting the offer documents to SEBI
Decision on the issue date & issue price band is taken
Offer Prospectus modification with respect to date and price band if any. Document is now called Red Herring Prospectus.
Printing and distribution of red herring prospectus and IPO document to syndicate members

Bidding for the public issue - Investor
Public Issue Open for investors bidding.
Filling of application form by the investor
Providing bidding information to BSE/NSE
Sending the cheques collected to the registrar by syndicate members
Revision of bid by investor if any
Updating stock exchanges with latest data
Closing of public issue

Price Fixing - Lead Manager
Lead managers evaluate the final issue price.
Red Herring Prospectus is updated with the final issue price and sent to SEBI and Stock Exchanges

Processing IPO Applications - Registrar
All cheques and application forms are received by registrar
Applicant data is feeded into systems
Cheques are sent for clearance.
Looking out for all bogus application
Finalizing the pattern for share allotment
Preparing 'Basis of Allotment'
Transferring shares in the demat account of investors.
Refunding the remaining money though ECS or Cheques

Stock Listing - Lead manager
After the completion of all the above process lead managers decide the listing date with stock exchanges
Final listing of share on the exchange

Basic concepts attached with IPO
• Fixed issue price
• Book building issue
• Floor price
• Cut off price
Fixed issue price
Price at which the securities are offered/ allotted is known in advance to the investor

Book building issue
Price at which securities will be offered/ allotted is not known in advance to the investor. Only an indicative price range is known

Floor price
Floor Price is the minimum price (lower level) at which bids can be made for an IPO.

Cut off price
Cut off price refers to the price which is decided by the issuer i.e. the price at which the issuer decides to make the allotment and it indicates that the applicant is ready to accept the price decided by the issuer if he/she mentions cut off prices on the share application form.