Home IPO Terminology
1. What is an IPO? -

An Initial Public Offering (IPO) is when a company issues shares to the public for the first time. It is the process where a privately held company becomes a publicly traded company with the initial sale of its stock. An IPO is a tool that companies use to secure capital through investments for future use. In most instances, this investment is used to expand or improve the business. Certain IPOs are also an opportunity for the early investors in the company to monetise their investment. Accordingly, an IPO can comprise of fresh issue or offer for sale by existing investors or a combination of both.

2. What do you mean by IPO funding? +

IPO funding is a short term loan offered by NBFCs to retail investors, high net worth individuals, and corporate entities to apply for initial public offerings. The applicant pays only a small amount as margin; the lender funds the rest.

3. What is the IPO grading system? +

IPO grading is a process through which grades are assigned to companies' initial offerings based on certain factors. The closer the grading to 5, the stronger the company's fundamentals. As per SEBI, IPO grading can be done before or after filing documents (draft offer).

4. What is the difference between IPO and FPO? +

FPO (abbreviation for Follow-on Public Offer) is a process in which an existing company listed on the stock exchange issue new shares to the existing shareholders or to the new investors. It is a in the form of public issue.
It is different from an IPO where the company issue its shares to its public for the first time to collect funds in order to grow their business or existing shareholders sell their stake. The reason behind the company undertaking an FPO is to expand its equity base. The company uses FPO only after the company has completed the process of an IPO to make their shares available to the public and to raise capital for their business.

5. What is price band? +

A price band is a price floor and a cap between which a seller will let buyers place bids on a security, during an initial public offering (IPO).

6. What is the difference between a fixed price and book building IPO? +

In the book-building method, the price of the shares is determined based on the demand for the shares at the end of the bidding process. The issuer announces a price range (e.g. Rs 75 to Rs 80) for the issue. In the fixed price method, the offer price is set before the IPO opens for the subscription (e.g. Rs 75).

7. What is "Minimum Order Quantity" for an IPO? +

Minimum Order Quantity, as name says, is the minimum number of shares investors can apply while bidding in an IPO. If investors want to bid for more shares, they can apply in multiples of IPO bid lot (lot Size or IPO bid lot) of shares.

8. What is cut off price? +

Cut-off price is the offer price, finalized by a company in consultation with the book running lead managers (BRLMs), which could be any price within the price band. Applying on Cut-off price means the investor is ready to pay whatever price is decided by the company at the end of the book-building process. When applying at a cut-off price, an investor has to pay the highest price while placing the bid. If a company decides the final price lower than the highest price asked for IPO, the remaining amount is returned to the retail investor.

9. What is the ASBA payment method in IPO? +

ASBA stands for "Applications Supported by Blocked Amount". At the time of bidding, investors' account is blocked to the extent of the bid amount and debited only at the time of allotment. In other payment options, the bid amount is debited when investors' bid application is placed with the stock exchanges. Under the ASBA process, the amount will be debited from investors' bank account to the extent of successful allotment at the time of allotment. Until such allotment, the amount will remain blocked in investors' bank account. Application under this facility can be placed only for Book Built Public Issues.

10. Who is a Syndicate Member/Broker? +

Syndicate members are commercial or investment banks, usually registered with market regulator, SEBI in India, or registered as brokers with stock exchanges, responsible for underwriting IPOs. They work as intermediaries between the Issuer Company and investors who bid for IPO stocks.

11. What is Grey Market Premium? +

It is the amount, over and above the issue price, that traders are willing to pay or ask for to trade IPO shares. The GMP can tell you how an IPO will perform on its listing day.

Grey Market premium should not be the factor influencing investors decision on their investments. GMP has no regulatory authority and investors should do their own diligence and read the offer document while making their investment decisions.