Primary market
Buying shares before the market has an opinion
A public issue is the one moment when the price is set by the seller rather than discovered by the market. This page explains how an application actually works, why money is blocked rather than paid, how allotment is decided when everyone wants in, and how an offer for sale differs from all of it. No live issues, no subscription figures, nothing that goes stale.
- How you pay
- You do not, yetThe amount is blocked in your bank account under ASBA, not debited.
- How it is authorised
- A UPI mandateYou approve it in your own UPI app before the cut-off.
- What you apply in
- LotsA whole number of lots, never an arbitrary quantity.
- Applications per PAN
- OneA second application on the same PAN gets both rejected.
- If oversubscribed in retail
- A lottery for one lotExtra lots do not improve the odds of getting something.
- Cost to apply
- NothingBrokerage and statutory charges apply when you sell, not when you apply.
- Where shares land
- Your own dematBefore listing, in your name at the depository.
Price bands, lot sizes, category reservations, the retail ceiling, issue and listing dates and the timetable between them are set for each issue by the company, its bankers, SEBI and the exchanges, and the framework itself is amended from time to time. This page describes how the process works rather than the terms of any particular offer. The offer document, the exchange notice and your allotment advice are the authoritative record.
Three things to be clear about before applying to anything. First, a public issue is not a discounted entry: the price is proposed by the company and the selling shareholders, who have every incentive to choose the most favourable moment and the highest defensible number, and a great many issues have listed below that price and stayed there. Second, allotment is not a right; in an oversubscribed retail category it is decided by a draw, and applying for more lots does not improve your chance of receiving one. Third, an application is a binding bid: once the mandate is approved the money is blocked, and it is not available to you for anything else until the issue is settled. Nothing on this page is a recommendation to apply to any issue, and no listing outcome is assured.
Four things a public issue actually is
Most of what goes wrong here comes from misunderstanding one of these four, and none of them are about which company to apply to.
It is a sale, and someone chose the price
In the secondary market a price is discovered continuously between buyers and sellers who each have their own view. In a public issue the band is proposed by the company and its bankers, at a time of their choosing, with the accounts presented as favourably as the rules permit. That is not wrongdoing; it is the nature of a sale.
Consequence: the question is not whether the price is fair because it was fixed, but whether the business is worth it.
Some of the money goes to the company, some does not
A fresh issue creates new shares and the proceeds go into the business, for a purpose the offer document has to state. An offer for sale transfers existing shares from current holders to you, and not a rupee of it reaches the company. Most issues are a mixture, and the split is printed.
Consequence: read the split. Who is selling, and how much of their holding, is information about what they think.
Your money is blocked, not paid
Under the applications-supported-by-blocked-amount mechanism, the sum stays in your own bank account and simply cannot be used. It earns whatever your account pays and it is debited only to the extent shares are actually allotted. Everything else is released when the issue is settled.
Consequence: applying does not cost you anything, and it does tie up the money for the duration.
Everything you are entitled to know is in one document
The offer document sets out what the company does, what it earns, what it owes, who owns it, what the money will be used for, every material legal proceeding, and a section of risk factors the company is required to disclose about itself. It is long, it is dry, and it is the only source on the list that is not trying to sell you anything.
Consequence: if you will not read the risk factors and the objects of the issue, you are not evaluating the issue.
Six kinds of offer, and they are not variations of each other
They reach you through the same account and they work differently in almost every respect that matters:
who is selling, where the money goes, how you bid, and what decides whether you get anything.
Mainboard IPO
A company's first sale of shares to the publicShares are offered to the public for the first time and the company is listed on the main board of an exchange at the end of it. The offer can be a fresh issue, where the money reaches the company, an offer for sale by existing holders, where it does not, or a mix of the two, and the prospectus states the split.
- Priced in a band through book building, or at a fixed price for a smaller issue.
- Divided before anyone bids, with reservations for retail, non-institutional and qualified institutional buyers.
- Applied for in lots through ASBA, with the money blocked in your own bank account rather than paid.
What to read first
- The split between the fresh issue and the offer for sale
- The objects of the issue, and how much is general corporate purposes
- The risk factors that carry a number rather than a generality
- What the price band assumes about growth, in the basis for the issue price
Reading the subscription multiple as a verdict on value. It measures how many people wanted in at that price, which is a fact about demand, not about the business. The most enthusiastically subscribed issues leave the least room for anything to go right afterwards.
Eligibility conditions, category reservations, minimum application sizes, timetables and the rules governing each of these are prescribed by SEBI and the exchanges and are amended from time to time. This section describes the character of each route rather than the terms of any offer currently open, and nothing here is a recommendation to participate in any of them.
What happens between your bid and the money being blocked
Five steps, two of which are yours and three of which are not. The step people miss is the fourth, and missing it makes the whole application lapse.
Steps 1 and 4 are yours. The money never leaves your bank account until shares are actually allotted to you. Not approved before the cut-off, and the whole application simply lapses.
Something you have to do Happens without youNothing is debited at the application stage.
The mandate has a deadline, and it is earlier than you think
The window to approve the request in your UPI app closes before the issue itself does, and an unapproved mandate means no application at all, however carefully the bid was placed. Applying on the last afternoon leaves no room for a notification that arrives late or an app that will not open.
Practical effect: apply a day early, and check the app rather than waiting to be reminded.
One PAN, one application
Two applications carrying the same permanent account number are both liable to be rejected, and that includes one placed through us and another placed through a bank. Members of a family who each have their own PAN, demat account and bank account may each apply in their own name, which is a different thing from applying several times.
Practical effect: decide where you are applying from, and do it once.
What bidding at cut-off means
A retail applicant may bid at cut-off instead of naming a price, which means agreeing to pay whatever final price is discovered within the band. The upper end of the band is blocked, and if the final price comes out lower the difference is released. Naming a price below the eventual cut-off means no allotment at all.
Practical effect: bidding at cut-off maximises the chance of being considered, and it is not a view on value.
The sequence an issue runs through
The dates differ for every offer and the framework has been compressed more than once,
so treat the order as fixed and the durations as something to read off the offer document.
The company files a draft with SEBI through its merchant bankers and it is made public for comment. It carries the business description, the financials, the litigation, the shareholding and the risk factors. There is no price in it yet, and it is the single most useful document you will get.
The red herring prospectus adds the band, the lot size, the dates and the category reservations. Anchor investors are allotted on the working day before the issue opens, at a price within the band, with their own lock-in periods; that allocation is published and is worth reading.
Bids come in from qualified institutional buyers, non-institutional investors and retail individual investors, each in their own reserved portion, with subscription figures updated through the day. Retail bids may be revised or withdrawn until the close; institutional bids cannot be withdrawn.
The registrar reconciles every valid application, the final price is determined within the band, and the basis of allotment is worked out category by category and published. Technical rejections, duplicate applications and unapproved mandates drop out here.
Successful applicants are debited only for what they received and the shares are credited to their demat accounts. Unsuccessful applicants have the block released in full. If your bank still shows a lien after the notified date, that is a question for the bank and the registrar, and there is a formal complaint route if it is not resolved.
The share lists on the exchanges, opening through a special pre-open session that discovers the first price from the orders collected in it. From that moment it is an ordinary listed share, subject to the price bands applicable to a newly listed security, and whatever the issue price was stops mattering to anyone but you.
How allotment is decided when everyone wants in
This is the part most widely misunderstood, and the misunderstanding costs people real money in blocked funds every time an issue is popular.
The issue is divided before anyone bids
A prescribed share of the offer is reserved for qualified institutional buyers, another for non-institutional investors and another for retail individual investors, with further sub-limits inside some of those. You compete only with the people in your own category, and the categories are frequently subscribed to wildly different extents.
Where to look: the reservations are printed in the red herring prospectus for that issue.
More lots do not improve your odds in retail
When the retail category is oversubscribed, the pool is divided so that as many applicants as possible receive the minimum lot, and the recipients are chosen by a computerised draw. An application for one lot and an application for ten enter that draw the same way. The ten-lot application simply blocks ten times the money to lose the same lottery.
Consequence: in a heavily oversubscribed issue, applying for the minimum is the efficient choice.
The other categories work differently
In the non-institutional category allotment is proportionate rather than a lottery, subject to a minimum, so a larger application does receive more. The institutional portion is allocated at the discretion of the company and its bankers within the rules. Moving up a category means a much larger cheque and a different set of mechanics, not a better version of the same one.
Worth knowing: the ceiling on the retail category is prescribed, and one rupee above it moves your application into the next category.
The basis of allotment is a published document
After the issue closes the registrar publishes exactly how many applications were received at each lot size, how many were valid, and what ratio was applied to each bucket. It is the arithmetic behind your result, it is public, and it takes two minutes to read.
Where to look: the registrar's website, the exchange notices, and the allotment status page for that issue.
Why valid applications still get rejected
A mandate not approved in time, a mismatch between the name on the PAN and the demat account, a second application on the same PAN, a frozen or inactive demat account, or an insufficient balance when the block is attempted. None of these are judgment calls and all of them are avoidable by checking before you bid rather than after.
Check first: that the demat is active, the bank is linked to UPI, and the name matches everywhere.
If the money stays blocked
The block should be released on the notified date whether or not you were allotted anything. If it is not, raise it with your bank first, since the lien sits with them, and then with the registrar. Regulations provide for compensation where an unblocking is delayed beyond the prescribed period, and there is a formal investor complaint mechanism if neither responds.
Keep: the application number and the bank reference. Both are asked for immediately.
An IPO, an offer for sale and a rights issue
They are often described together as ways of buying shares from a company.
Only one of them involves the company receiving anything, and all three use a different bidding mechanism.
Which of the three you are actually looking at
Two questions about the offer in front of you. The matching column below is highlighted. This explains how each mechanism works; it is not advice about whether to participate in any of them.
The company is not listed yet and the offer is open to anybody eligible, which is the definition of an IPO. Shares are applied for in lots through ASBA, the money is blocked rather than paid, and in an oversubscribed retail category the allotment is decided by lottery. Read the prospectus for the split between the fresh issue and the offer for sale: only the fresh portion reaches the company.
This identifies a mechanism from its characteristics. It takes no view on any company, price, offer or moment, it does not consider your financial circumstances, and it is not investment advice. Allotment is never assured and the value of an investment can fall.
Attribute IPO Offer for sale Rights issue
| Who is selling | The company, existing holders, or both | Promoters or large existing shareholders only | The company, to its own shareholders |
| Where the money goes | To the company for the fresh portion, to the sellers for the rest | Entirely to the selling shareholders | To the company |
| Is the company listed already | No, this is the listing | Yes, and it trades while the offer runs | Yes |
| Who may participate | Anyone eligible, in their category | Anyone eligible, through a broker | Only shareholders on the record date, or whoever buys their entitlement |
| How you bid | Lots, at a price or at cut-off, through ASBA | A quantity and a price at or above the floor, in an exchange window | Applying against the entitlement credited to your demat |
| How long it runs | Several days | Usually a single session, split between categories | A notified period of days |
| How the price is set | Book built within a band, or fixed | Bids above a floor price announced beforehand | Fixed by the company, usually below the market price |
| What decides allotment | Lottery in retail if oversubscribed, proportionate elsewhere | Priority by bid price, then proportionate at the cut-off | Your entitlement ratio, plus any additional shares applied for |
| Your funds | Blocked in your bank under ASBA | Margin or full value with the broker, per the offer terms | Paid on application, sometimes in instalments |
| Main thing to watch | Whether the price assumes a future that has to go right | Who is selling and how much of their stake it represents | Doing nothing dilutes you, and the entitlement expires if unused |
An offer for sale is over almost before it starts
It runs through a separate window on the exchange, typically on a single day split so that non-retail bids come first and retail bids follow on the next. There is no lot size, no price band and no multi-day book: you place a quantity and a price at or above the announced floor, and it is done.
Practical effect: the decision window is hours, and the terms are in the exchange notice rather than in a prospectus.
A discount is not the same as a bargain
Retail bidders in an offer for sale are often given a discount to the discovered price, and a rights issue is normally priced below the market. Both are real advantages and neither tells you whether the share is worth holding, because the reference price they discount from is itself only what the market happens to think today.
Practical effect: a discount changes your entry price. It does not change the business.
A rights entitlement is itself worth something
The right to subscribe is credited to your demat account as a separate tradeable instrument for a short window. You may use it, or sell it to someone who will. What you must not do is ignore it: an unused entitlement lapses worthless and your proportion of the company falls all the same.
Practical effect: put the last date in your calendar on the day the entitlement is credited.
Six places to look in the offer document, in this order
A red herring prospectus runs to hundreds of pages because the company is required to tell you everything that could go wrong.
You do not need all of it: six sections, in the order below, answer the questions that decide whether an issue is for you.
Objects of the issue
click to read this section
Risk factors
click to read this section
The restated financial statements
click to read this section
Basis for the issue price
click to read this section
Promoters, management and the selling shareholders
click to read this section
Issue structure and the terms of the offer
click to read this section
What gets blocked, and what a listing move is worth
Both calculators work entirely on figures you type in from the offer document.
Neither knows what any issue is priced at, whether it is open, or what it might do on listing.
Why the upper end of the band. A bid at cut-off blocks the amount for the highest price in the band, whatever price is eventually discovered. If the final price comes out lower, the difference is released along with everything else.
The two calculators answer different questions, and only the first one has an answer. /b> What gets blocked is arithmetic: the offer document gives you every input and the result is certain. What a listing is worth is a guess dressed in arithmetic, and the page shows you the downside next to the upside for that reason. If the reason to apply is a number somebody quoted you for the expected listing gain, the reason to apply is somebody else's guess.
Six ways this goes wrong that have nothing to do with bad luck
Not getting an allotment is not on this list. That is the system working as designed, and it costs you nothing but the wait.
Assuming a listing is a gain
Issues list below their offer price regularly, and some never return to it. The pattern is not random either: the more enthusiastic the market is when an issue is priced, the more the price already assumes, and the less room is left for anything to go right afterwards.
Test: would you want to own this company at this price if it were already listed? If not, the listing does not change that.
Treating unofficial quotes as information
Unofficial premiums circulating before listing are quotes in an unregulated market with no oversight, no obligation of performance and every incentive to be talked up by people who benefit from enthusiasm. They are not a forecast and they are not a price. Neither is the subscription multiple, which measures demand rather than value.
Test: if you cannot name who is quoting the figure and what they gain from it, it is not data.
Not reading who is selling
An offer document states exactly which shareholders are selling and what proportion of their holding that represents. A founder or an early investor reducing a stake is normal and not by itself a warning. A large part of the issue being an exit, at a valuation the sellers chose, is a fact worth knowing before you take the other side of it.
Test: what share of the total offer is fresh issue, and what will the company actually do with it?
Underestimating what an SME issue is
The minimum application is far larger than on the main board, the disclosure regime is lighter, the number of shares available to trade afterwards is small, and the price can move a long way on very little volume. Getting in is the easy part; getting out of a position of any size can take a long time and cost a great deal.
Test: could you sell the whole holding in a week without moving the price? If not, size it accordingly.
Borrowing to apply for more
In an oversubscribed retail category the extra lots do not improve the odds, so money borrowed to fund them pays interest for a lottery ticket that was already free. Funded applications belong to the non-institutional category, where allotment is proportionate and where the interest cost is a real and calculable drag on any gain.
Test: if the listing is flat, does the interest alone put you behind? Usually it does.
Forgetting the money is unavailable
A blocked amount cannot be used for anything else until the issue settles, and an automatic debit that fails because of it costs you a penalty and sometimes a credit record. Applying for several issues at once, or for a large number of lots, can tie up far more than intended at exactly the wrong moment.
Test: what is due to leave that account in the next ten days, and will the balance still cover it?
Dos and don'ts of a public issue
Twenty lines, and the right-hand column is the one that costs people money. None of it is about picking the right issue, because that is a judgement nobody can make for you.
Do
Do not
Nothing to apply, and the usual charges when you sell
Rates move with circulars and with the Finance Act, so the table gives you the structure and tells you where the current figure is published.
| Line item | Calculated on | Levied by | Where the current rate is published |
|---|---|---|---|
| Applying to an IPO | Nothing. There is no fee to apply, and no brokerage on an allotment. | YUKTI | Free |
| Bidding in an offer for sale | It is an exchange transaction, so brokerage applies at the flat per-order rate. | YUKTI | ₹20 per executed order |
| Brokerage when you sell | Nothing. It is a flat amount per executed order, whatever the order is worth. | YUKTI | ₹20 per executed order |
| Securities transaction tax | The traded value on a sale, at the notified rate for a delivery transaction. | Government | Notified rate, in the Finance Act |
| Stamp duty | The value of shares issued or transferred to you, including on allotment. | State | Uniform rates notified under the Stamp Act |
| Exchange transaction charge | Turnover on the sale, at a rate that differs between the exchanges. | NSE or BSE | Exchange circular, revised periodically |
| SEBI turnover fee | Turnover on the sale. | SEBI | SEBI circular |
| Goods and services tax | Brokerage plus the transaction and regulatory charges, not the traded value. | Government | Prevailing GST rate |
| Depository charge | Each scrip sold from demat on a given day, regardless of quantity. Nothing on a credit. | Depository | The published tariff sheet |
| Interest forgone | The blocked amount, for the days it is blocked. It is not billed to you and it is a real cost of applying. | Nobody | Whatever your bank pays on that balance |
Your contract note sets out every statutory line separately, by name, for each trade day, and it is the authoritative record of what you were charged on a sale. The allotment advice from the registrar is the corresponding record for the allotment itself.
How the tax on this is put together
Rates, thresholds and holding-period boundaries are set in the Income-tax Act and amended by each Finance Act, so they are not quoted here. The structure is what you need in order to ask the right question.
The clock starts at allotment, not at application
The holding period runs from the date the shares are allotted to you, which is why selling on or shortly after listing is always a short-term gain. Nothing about having applied weeks earlier, or having had the money blocked, counts towards the period.
Keep: the allotment advice. It carries the date the computation depends on.
Two holding periods, two rates
A gain on a listed share is taxed one way below the prescribed holding period and another way above it, with the long-term rate the lower of the two and a threshold of long-term gain exempt each year. A listing-day sale sits firmly on the short-term side, which is a real cost that the headline gain does not show.
Check the current figures in: the Finance Act for the relevant year, or with a chartered accountant.
Selling a rights entitlement is itself taxable
If you sell the entitlement rather than subscribing, that sale is a capital gain in its own right, with its own rule for what the cost of acquisition is taken to be. If you subscribe instead, the holding period for the new shares starts when they are allotted, separately from the shares you already held.
Practical effect: one corporate action can produce two different holdings with two different clocks.
Buyback proceeds have their own treatment
How money received in a buyback is taxed in the hands of the shareholder has been changed by amendment more than once, including a shift in who bears the tax. It is the single item on this page most likely to have moved since you last checked, so check it for the year in question rather than relying on what was true before.
Practical effect: confirm the position for the relevant year before tendering, not afterwards.
Losses are not wasted
A loss on an issue that listed below its offer price can be set off against capital gains under rules that distinguish short-term from long-term, and what cannot be used in the year can generally be carried forward for a number of years, provided the return is filed within the due date.
Practical effect: file on time even in a year you made nothing, or the carry-forward is lost.
This is a description of how the tax treatment is structured and is not tax advice. Rates, thresholds, holding periods and classifications are amended from time to time and the ones that apply to you are those in force for the relevant year, applied to your own circumstances. Please consult a qualified tax professional.
The public issue glossary
Every term you will meet in an offer document, an allotment advice or an exchange notice, defined in one or two sentences. Type to search, or jump by letter.
All 27 terms.
A qualified institutional buyer allotted shares a day before the issue opens, at a price fixed then, with a lock-in. The anchor book is published and tells you which institutions were willing to commit, and when their shares become sellable.
Applications supported by blocked amount. Your money stays in your own bank account and is only blocked, not debited, until shares are allotted to you. It is the only route for a retail application in a public issue.
The document published by the registrar after an issue closes, setting out how many applications were received in each category, how many were valid, and exactly how the shares were distributed. It is where you find out why an application was rejected.
The minimum number of shares that can be applied for, and the multiple in which every larger application must be made. Stated in the prospectus and fixed for the issue.
The usual method of pricing an issue: bids are collected across a price band and the final price is discovered from the demand received. The alternative is a fixed price issue, where the price is stated up front.
A retail bid that accepts whatever price is finally discovered within the band. The amount blocked is calculated at the top of the band, and the difference is released if the issue is priced lower.
The draft red herring prospectus, filed with SEBI for its observations before an issue. It contains the business, the risks and the financials, but not the price band or the dates.
The portion of an offer in which new shares are created and the money raised goes to the company. It is the part of an issue that funds something, and it dilutes existing holders.
An over-allotment facility that lets a stabilising agent buy shares in the market after listing, within limits and for a limited period, to reduce volatility. Its existence and size are disclosed in the prospectus.
An unofficial quote circulating before listing, in an unregulated market with no oversight and no obligation of performance. It is not a forecast, not a price and not information. Nothing on this website reports it.
A period during which certain shares, typically those of promoters and anchor investors, cannot be sold. The dates matter because supply increases when a lock-in ends.
The request that arrives in your UPI application asking you to authorise the block. It has a cut-off time, it must be approved for the application to be valid, and nobody from a broker or a bank will ever ask you for the PIN that approves it.
The proportion of an issue that must be subscribed for it to proceed. If it is not reached, the issue is withdrawn and the blocked money is released.
An applicant, other than a qualified institutional buyer, applying for more than the retail ceiling. Allotment in this category is proportionate rather than by lottery.
Two meanings. Within an IPO, the portion in which existing shareholders sell their shares and the proceeds go to them rather than to the company. Separately, an exchange mechanism by which large holders of a listed company sell through a dedicated window.
An issue receiving bids for more shares than it is offering. It is a measure of demand at that price on those days, and it says nothing about what the shares are worth.
The floor and ceiling between which bids may be placed in a book built issue, announced shortly before the issue opens. The final price is discovered within it.
An institution such as a mutual fund, an insurer, a bank or a foreign portfolio investor, as defined by the regulations. A portion of most issues is reserved for this category.
The date on which the company's register is read to decide who is entitled to participate in a rights issue or a buyback. Owning the share after that date does not qualify you.
The intermediary that processes applications, runs the allotment, publishes the basis of allotment and handles complaints about applications and refunds. Its name and contact details are in the prospectus.
An applicant whose application value is at or below the retail ceiling prescribed by SEBI. In an oversubscribed retail category, allotment is by lottery and additional lots do not improve the odds.
The red herring prospectus, the version filed after SEBI's observations and before the issue opens. It carries the price band and the dates and is the document to read.
A tradeable instrument credited to the demat account of a shareholder on the record date, representing the right to subscribe to a rights issue. It can be used, sold during its window, or allowed to lapse worthless.
A separate exchange platform for smaller companies, with a much larger minimum application, lighter continuing disclosure and often thin liquidity after listing.
The number of times the shares on offer have been bid for, published category by category while the issue is open.
An intermediary that agrees to subscribe to shares not taken up by the public, within the terms disclosed. It affects whether an issue proceeds, not whether it is a good investment.
The identifier linked to your bank account through which the block is authorised in a retail application. It must belong to you and be linked to the bank account named in the application.
Commonly asked about IPOs and offers for sale
Does applying to an IPO cost me anything?
click to see the answer
Will applying for more lots improve my chances?
click to see the answer
Can my whole family apply to the same issue?
click to see the answer
What does bidding at cut-off actually mean?
click to see the answer
My money is still blocked after the allotment date. What do I do?
click to see the answer
Is a grey market premium a reliable indication?
click to see the answer
Should I sell on listing day or hold?
click to see the answer
How is an offer for sale different from an IPO?
click to see the answer
What if I ignore a rights issue?
click to see the answer
Are SME IPOs just smaller versions of mainboard ones?
click to see the answer