How to read a DRHP and RHP before you apply for an IPO (2026)

A draft offer document, a red herring prospectus and a prospectus are three stages of one IPO. Read them before you bid. A grey market premium is an unofficial price, and this page does not print one.

This is the fourth note in the IPO series. The application guide is the form. The allotment guide is the draw. The status guide is one application. Live dates are on the IPO calendar. Company X, later, is an illustration. It is not a company that has filed.

What is a DRHP, an RHP and a prospectus?

A DRHP is the draft red herring prospectus. The regulations call it the draft offer document. In a book-built issue the company files it with SEBI through the lead managers, and with the stock exchanges, before the IPO. It does not contain the price.

The RHP is the red herring prospectus. SEBI’s primary-market FAQ of May 2025 says it has the relevant details except the price or the number of shares, and that it is filed with the Registrar of Companies before a book-built issue opens. Regulation 29 and Schedule XIII also allow a floor price or a price band in the RHP. The prospectus contains only one price. A fixed-price issue registers that prospectus before opening. A book-built issue registers it after the book closes.

The cap of a price band cannot exceed 120% of the floor, and it cannot be under 105% of the floor. The floor or the band is announced at least 2 working days before the issue opens.

When is each document filed?

The draft comes first. SEBI may specify changes within 30 days from the later of receipt, a satisfactory reply, a regulator’s clarification, or in-principle approval from the exchanges. The draft stays open for comments for at least 21 days from the public announcement, not merely from the filing date. The company announces the filing within 2 working days, in an English paper, a Hindi paper and a regional paper, and invites comments to SEBI, the company or the lead managers.

The draft, the offer document and the restated financials must not be more than 6 months old when the issue opens. After the RHP or the prospectus is filed with the Registrar of Companies, the lead managers file copies with SEBI and the exchanges.

Where do you find the draft and the red herring prospectus?

Use the official lists, then the company’s own site.

• SEBI’s public-issue filings list draft offer documents filed with SEBI, red herring documents filed with the Registrar of Companies, and final offer documents.
• BSE public issues and BSE draft offer documents carry the exchange copies.
• NSE’s IPO page lists issues on that exchange.
• The issuer and the lead managers host the draft on their own websites, with the draft abridged prospectus, for the comment period. There is no single lead-manager address that covers every issue. The document names the book running lead managers for that issue.

The IPO calendar carries opening dates, the band and the lot once an issue is live. Read the risk factors in the document itself.

What do the risk factors tell you?

Risk factors are the list of what the company and the lead managers put in writing. They tell you which threats are disclosed. They are not a ranking of the business, and they are not a view on the price.

Look for risks that name cash, a customer, a licence, or the people in control, and check that the later tables match.

Who gets the money: a fresh issue or an offer for sale?

Objects of the issue tell you what the company says it will do with the money it actually receives. A fresh issue is new shares. That cash comes into the company. An offer for sale is existing shares. The selling shareholders receive that cash. The company does not.

Sellers in an offer for sale must have held the shares for at least 1 year before the draft is filed, with exceptions such as a bonus issue or a court scheme. General corporate purposes cannot exceed 25% of the amount raised. Together with acquisitions whose target is not identified, the cap is 35%, and unidentified targets alone stop at 25%. A named target is outside those caps. A specific project needs firm arrangements for 75% of the stated finance, apart from the issue itself and identifiable internal accruals.

How long are the promoters locked in?

Promoters must hold at least 20% of the post-issue capital. If they hold less, certain investors can cover a shortfall of up to 10% of post-issue capital without being called promoters. If there is no identifiable promoter, the minimum does not apply. The test has to be met at least one day before the issue opens.

That minimum is locked for 18 months from allotment, or 3 years if most of the proceeds other than the offer for sale go to capital expenditure. That spending includes civil work, plant and machinery, land and building, and loans taken for it. Holding above the minimum is locked for 6 months, or 1 year in the capital-expenditure case.

Pledged shares do not count toward that minimum. The regulations set no extra percentage at which a pledge is too large. Pre-issue shares held by people other than the promoters are locked for 6 months from allotment. That lock-in covers many pre-IPO allotments.

What should you read in the capital structure?

The capital structure is the shareholding before and after the issue, plus shares issued on the way to the IPO. It tells you who still controls the company, and who is selling.

Read the promoter and promoter-group holding, including anyone covering a shortfall. Read recent allotments and any pre-IPO placement, and set those prices next to the band. Read what is pledged. A recent allotment at a price far from the band is a question. Compare the prices printed in the document. There is no discount percentage at which that gap is banned.

What is the basis for the issue price?

The basis for issue price compares the company with a peer group. Schedule VI asks for earnings per share and diluted earnings per share for three years, the price to earnings ratio, average return on net worth, net asset value per share before and after the issue, and the peers. That is the company’s arithmetic. Check whether the peer set is really comparable.

Key performance indicators, where the document includes them, must be defined in plain words, approved by the audit committee, certified, and shown for the same period as the restated financials. Read the definition before comparing an “adjusted” profit with another company’s figure.

What else should you check before you bid?

Litigation is the amount claimed against the company, the promoters and the directors. One large case matters more than a long list of small ones.

Related-party transactions are sales, loans and guarantees with the promoter group. Disclosure is required. You still check whether those deals are a large share of revenue.

The dividend policy is the record of what was paid. A promise that the board will decide later is not a yield.

The industry overview is often taken from a report the company commissioned. If an extract is printed, the full report is a material document. Read it with care. This page does not name the firms that write those reports.

Restated financials should match the other sections. Read profit, revenue and cash from operations together. Profit with no cash from the business belongs with the risk factors.

Which red flags are worth slowing down for?

Each row is a reason to find the page that explains it before you block the money.

What is an anchor investor?

An anchor investor is a qualified institutional buyer that bids before the issue opens to everyone else. The application is at least ₹10 crore on a main-board issue, and at least ₹2 crore on an SME issue. Up to 60% of the institutional portion may go to anchors. Allotment is discretionary and ends on the anchor bidding day.

If the discovered price is higher, anchors pay the difference. If it is lower, the extra is not refunded. For issues opening on or after 1 April 2022, 50% of the anchor shares are locked for 90 days and the rest for 30 days. An issue of ₹10,000 crore or more uses that split from 1 July 2022. Lead managers, and people related to the promoters, generally cannot apply as anchors. Anchor demand does not decide a retail allotment or the price inside the band.

How does this connect to applying and to tax?

The bid is the UPI and ASBA guide. The bank blocks the money and debits it only if shares are allotted. The draw is the allotment guide. One application number is the status guide.

Allotment is not taxed. A sale within 12 months, including listing day, is short-term at 20% under Section 196 (this was Section 111A). After that, Section 198 (this was Section 112A) taxes the gain above ₹1,25,000 in the year at 12.5%. Use the capital gains guide and the capital gains calculator. Tax on IPO listing gains gets its own guide.