IPO Investing: How to Read the Offer Document (RHP)

Before applying for an IPO, read the company's offer document, especially the Objects of the Issue, Risk Factors, Financial Information, Basis for Issue Price and Outstanding Litigation sections. These tell you where your money goes, what could go wrong and whether the price is reasonable. The bidding itself is simple: in India you apply through ASBA, usually with a UPI mandate, and shares list within three working days of the issue closing.

The offer documents, in order

All are available on SEBI's website, the stock exchanges (NSE and BSE) and the lead managers' websites. SEBI amended its issue regulations in March 2026 to standardise the abridged prospectus and make the full documents easier to reach online, but the RHP remains the document to read.

What to read in the RHP, section by section

1. Objects of the Issue: where the money goes

An IPO can have two parts:

• Fresh issue: new shares; the money goes to the company for stated uses such as repaying debt or building capacity.
• Offer for sale (OFS): existing shareholders such as promoters or private equity funds sell their shares; the money goes to them, not the company.

A large OFS is not automatically bad, but it means the issue mainly provides an exit. Check how much of the fresh issue is earmarked for "general corporate purposes"; SEBI caps this at 25% of the fresh issue proceeds. Vague objects deserve scepticism.

2. Risk Factors

Usually long and partly boilerplate. Focus on company-specific items: dependence on a few customers or suppliers, regulatory approvals, negative cash flows, pending tax demands, and related-party dealings.

3. Financial Information

Restated financial statements for the last three years. Look for revenue growth, profit margins, operating cash flow (does profit turn into cash?), debt and return on equity. Our guide on how to read financial statements explains each line.

4. Basis for Issue Price

The company compares its earnings per share, price-to-earnings ratio, return on net worth and key performance indicators (KPIs) with listed peers. This is the section to test whether the price is stretched.

5. Capital structure and promoter holding

Check the promoters' stake before and after the issue, recent share allotments at much lower prices, and lock-ins. Promoters must lock in a minimum contribution, generally 20% of post-issue capital, for at least 18 months, and anchor investors are also locked in for set periods.

6. Outstanding litigation and material developments

Criminal cases, regulatory actions and large claims against the company, promoters or directors.

Worked example: an illustrative IPO

All figures are illustrative and do not describe a real issue.

Issue: ₹1,000 crore, of which ₹400 crore is a fresh issue and ₹600 crore an OFS. Price band ₹285–300. Lot size 50 shares.

What you pay:

• One lot at the upper end: 50 × ₹300 = ₹15,000
• Maximum retail bid within ₹2 lakh: ₹2,00,000 ÷ ₹15,000 = 13.33, so 13 lots = 650 shares = ₹1,95,000

Where the money goes: ₹600 crore ÷ ₹1,000 crore = 60% goes to selling shareholders; only 40% reaches the company.

Valuation at ₹300:

• Post-issue shares: 20 crore. Market capitalisation = 20 crore × ₹300 = ₹6,000 crore
• Last year's profit after tax: ₹200 crore. EPS = ₹200 crore ÷ 20 crore = ₹10
• P/E = ₹300 ÷ ₹10 = 30 times
• If listed peers trade at 25 times earnings, the issue is priced at 30 ÷ 25 − 1 = 20% premium to peers, which needs justifying by faster growth or better margins.

Allotment odds: Suppose the retail portion is 35% of the issue = ₹350 crore.

• Retail shares: ₹350 crore ÷ ₹300 = 1,16,66,666 shares (rounded down)
• Retail lots: 1,16,66,666 ÷ 50 = 2,33,333 lots (rounded down)
• If 10,00,000 valid retail applications are received, each has about 2,33,333 ÷ 10,00,000 = 23.33% chance of one lot

Because allotment is by lottery for one minimum lot, applying for 13 lots instead of one does not improve these odds; it only blocks more money.

How applying works: ASBA and UPI

ASBA (Application Supported by Blocked Amount) is the only way to apply in a public issue. Your bank blocks the bid amount in your account; it is debited only if you get shares.

As of October 2026:

Steps for a typical retail bid:

1. Log in to your broker's app or your bank's net banking IPO section.
2. Choose lots and tick cut-off price (retail only), which means you accept whatever final price is set within the band.
3. Enter your UPI ID, if using UPI.
4. Approve the mandate in your UPI app before the cut-off time on the closing day. Unapproved mandates are treated as invalid bids.
5. Keep the amount in your account until allotment.

One PAN can make only one application per issue in a category; multiple applications under the same PAN are rejected.

The T+3 timeline

SEBI made T+3 listing mandatory from 1 December 2023, where T is the issue closing day.

Retail quota: depends on the company's profile

For a main-board IPO by a company meeting SEBI's profitability track record, at least 35% of the net offer is reserved for retail investors, up to 50% for QIBs and at least 15% for non-institutional investors. For companies that do not meet those tests, at least 75% goes to QIBs and retail can get at most 10%. That second category is a signal in itself: the company is relying on institutional judgement.

SME IPOs on NSE Emerge and BSE SME follow separate, stricter rules, with much larger minimum applications. Treat them as a distinct, higher-risk market.

Red flags and scams

• Hype over substance. Listing-day gains are not guaranteed; some IPOs list below the issue price.
• Grey market premium (GMP). Unofficial and unregulated; do not base decisions on it.
• "Guaranteed allotment" offers. Allotment is by lottery and no one can guarantee it. WhatsApp and Telegram groups offering "IPO quota" or institutional allotment via an app are a known fraud pattern. See how to spot investment scams. Report fraud at cybercrime.gov.in or the 1930 helpline, and complaints against regulated entities on SEBI SCORES.

To compare an IPO's later performance with other investments over different periods, convert returns into an annual rate with the CAGR calculator. For an alternative way to own many companies at once, see what is an ETF.

Tax on IPO shares

Gains on shares sold within 12 months of allotment are short-term, taxed at 20% (Section 196 of the Income-tax Act, 2025, old 111A). Held longer, gains above ₹1.25 lakh a year are taxed at 12.5% (Section 198, old 112A), as of October 2026.

This article is educational and not a recommendation to apply for any issue.

Key takeaways

• Read the RHP's Objects of the Issue, Risk Factors, Financial Information, Basis for Issue Price and Litigation sections before bidding.
• An OFS pays selling shareholders, not the company; in the illustration 60% of the money went to sellers.
• In the illustration, a ₹300 price on ₹10 EPS meant a P/E of 30, a 20% premium to peers at 25.
• Retail bids are capped at ₹2 lakh; UPI works for individual bids up to ₹5 lakh; allotment is a lottery for one lot.
• Shares list on T+3 under SEBI's timeline, mandatory since 1 December 2023.