What are the SEBI Guidelines for an IPO

The Securities and Exchange Board of India (SEBI) is the regulatory authority overseeing securities markets in India. One of its key responsibilities is to govern the Initial Public Offering (IPO) process, ensuring transparency, investor protection, and fair play in capital markets.

SEBI’s IPO guidelines are part of a broader framework to regulate public fundraising by companies. The main objectives are:

• Ensuring full disclosure to investors
  

• Preventing misrepresentation or fraud
  

• Facilitating a fair and transparent capital market

Companies must follow these rules from the time of filing their offer documents until the IPO concludes.

To launch an IPO in India, a company must meet one of the following routes prescribed by SEBI:

Route 1: Profitability Route (Regulation 6(1))

• Net tangible assets of at least ₹3 crore in each of the last 3 full years (excluding revaluation reserves).
  

• Minimum aggregate pre-tax profits of ₹15 crore in any 3 of the last 5 years.
  

• Net worth of at least ₹1 crore in each of the past 3 full years.
  

• Entire pre-issue shareholding must be in demat form.
  

Route 2: QIB Route (Regulation 6(2))

• Companies not meeting profitability norms can proceed via book-building, with at least 75% of the net offer reserved for Qualified Institutional Buyers (QIBs).

SEBI requires full disclosure of fund usage in the offer document but does not mandate any specific allocation (e.g., for project funding).

Key steps and regulatory checkpoints include:

1. Draft Red Herring Prospectus (DRHP): Filed with SEBI for comments.
   

2. SEBI Approval: SEBI may ask for revisions before granting approval.
   

3. Book-Building Process: Pricing mechanism that allows investors to bid within a specified range.
   

4. Listing Requirements: Fulfil criteria set by stock exchanges for listing shares post-issue.

SEBI has structured the allotment process to balance investor classes:

• Qualified Institutional Buyers (QIBs): 50% reservation.
  

• Non-Institutional Investors (NIIs): 15% reservation.
  

• Retail Individual Investors (RIIs): 35% reservation; application limited to ₹2 lakh.
  

• Lottery System: Applied if applications exceed the available quota in the retail category.

Applicants must follow SEBI’s standardised process:

• ASBA (Application Supported by Blocked Amount): Investor’s funds are blocked until allotment.
  

• UPI Mandate (for Retail Investors): Mandatory for applications below ₹5 lakh.
  

• PAN Requirement: One PAN per application is allowed to prevent duplication.

SEBI regularly updates IPO norms to improve market practices. Recent amendments include:

• Anchor Investor Lock-In: Extended to 90 days for 50% of shares.
  

• Price Band Rules: Minimum difference of 5% between floor and cap price.
  

• Disclosure Norms: Greater transparency required on the object of issue, risk factors, and promoter holding.

These changes are intended to increase disclosure standards and improve transparency in IPO markets.

SEBI plays a vital role in regulating IPOs in India. Its guidelines span company eligibility, documentation, pricing, application process, allotment rules, and compliance. By enforcing these norms, SEBI fosters investor trust, market transparency, and fair capital formation.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.