An Initial Public Offering (IPO) is the process by which a private company becomes publicly traded by offering its shares to the general public. This allows the company to raise capital and enables investors to buy and sell its shares on a stock exchange.

Companies typically launch IPOs to secure additional funds for purposes such as expanding operations, reducing debt, or funding research and development.

During an IPO, companies can issue fresh shares to raise new capital, allow early-stage investors to sell existing shares, or both. This provides an opportunity for early investors and promoters to exit while facilitating growth through fresh capital infusion.

In India, IPO share allocation follows a structured approach across different investor categories:

1. Qualified Institutional Buyers (QIBs): QIBs include institutions like mutual funds, foreign institutional investors (FIIs), insurance companies, and banks. They are allocated a significant portion of IPO shares, usually up to 50% of the total issue size, based on demand.

2. High Net Worth Individuals (HNIs) / Non-Institutional Investors: HNIs are individual investors who contribute more than Rs 2 lakh in an IPO. This category includes wealthy individuals, corporate bodies, and high-net-worth entities. They receive a fixed percentage of IPO shares, typically not less than 15%, allocated through a lottery system if demand exceeds supply.

3. Retail Investors: Retail investors, investing less than Rs 2 lakh, form a crucial part of IPO participation, aiming to broaden public involvement. They receive a reserved percentage, generally not less than 35% of the total issue size. Allocation is often determined through a lottery system in oversubscribed scenarios.

The IPO allocation process is designed to ensure fairness and balance among different investor categories, promoting a diverse investor base and contributing to market stability.