Guide 9 minutes
How a company raises money: IPO, QIP, rights issue or a loan
A company that needs money can sell shares to the public, to institutions or to its own shareholders, or it can borrow. Each route has a different price, and the price isn't always in rupees.
Sameer has a plan for more kiosks and more vans, and the plan has a hole in it where the money should be. He's written four words on the whiteboard: IPO, QIP, RIGHTS, LOAN.
SameerWe've done one of these already. Which one next?
RiyaThat's the board's call, not mine. But I can show you what each one costs and who pays. Then the choice is yours with your eyes open.
The four routes on one page
We've used two of these for real: the IPO in FY24 and the ₹20 crore bank loan. The QIP and the rights issue are FY27 what-ifs.
| IPO (FY24) | QIP (what if) | Rights issue (what if) | Bank loan | |
|---|---|---|---|---|
| Money raised | ₹60 crore to the company | ₹50 crore | ₹22.5 crore | ₹20 crore |
| Who puts it in | The public and institutions | Institutions only | Existing shareholders | The bank |
| New shares | 1.5 crore at ₹40 | About 96 lakh at about ₹52 | 50 lakh at ₹45 | None |
| Sameer's stake | About 86% → 60% | 60% → about 50% | Stays 60% if he takes up his share | Stays 60% |
| Who must say yes | Shareholders, then SEBI's observations | Shareholders, by special resolution | The board | The board, within its borrowing limit |
| How fast | About 13 months, draft to issue | Quick once shareholders approve | Within 23 working days of board approval | As fast as the bank's credit check |
| The main cost | Bankers, lawyers, listing, and a slice of the company | Placement fees and a slice of the company | Fees, and a discount to the market price | ₹2 crore of interest a year |
Now each route on its own.
The IPO, selling to everyone
An initial public offer is a company's first sale of shares to the public. Ours had two parts: 1.5 crore new shares at ₹40, which brought ₹60 crore to the company, and the early investor's 50 lakh shares, which brought ₹20 crore to him.
Who puts the money in. Anyone who bids: retail investors, wealthy individuals, mutual funds, insurers.
Dilution. Before the IPO there were 3.5 crore shares and Sameer held 3 crore, about 86%. After it, 3 crore of 5 crore: 60%. The same profit is now shared over 43% more shares.
Speed and cost. The slowest route by far. A private company can't offer shares to the public at all, so Sameer Chai first had to become a public company. Then came the DRHP in September 2022, SEBI's observations, and the issue in October 2023. Along the way: lead managers, lawyers, auditors and listing fees.
What changes for existing shareholders. Everything. The company now reports every quarter, holds an AGM with 1,20,000 shareholders, and every move Sameer makes is public.
SameerAnd it's a one-time trick.
RiyaBy definition. An IPO happens once. After that, a listed company raises equity through the other routes.
The QIP, selling to institutions
A qualified institutions placement sells new shares only to big investors such as mutual funds, insurers and banks. Only a listed company can do one.
The what-if. ₹50 crore at about ₹52, when the market price is ₹54. That's about 96 lakh new shares, taking the total to about 5.96 crore.
Who puts the money in. At least two institutions for an issue this size, and nobody more than half of it. At least 10% must go to mutual funds. Promoters can't buy.
Dilution. Sameer's 3 crore shares fall from 60% to about 50% of the company. Riya's mum's 200 shares shrink in the same proportion. Profit per share, before the new money earns anything, falls from ₹1.80 to 9 ÷ 5.96, about ₹1.51.
Speed and cost. Shareholders must first pass a special resolution, and the placement must then be completed within 365 days of it. The price can't be below a two-week average of recent prices, less a discount of up to 5% if shareholders approve. Small shareholders don't get to take part.
The rights issue, asking your own shareholders
A rights issue offers new shares to every existing shareholder, in proportion to what they hold.
The what-if. 1 new share for every 10 held, at ₹45. 50 lakh new shares raise ₹22.5 crore.
Who puts the money in. The owners themselves. Riya's mum would be offered 20 shares for ₹900. And here's what people forget: so would Sameer. To keep his 60%, he'd take up 30 lakh shares at ₹45, which is ₹13.5 crore from his own pocket.
SameerI don't have ₹13.5 crore lying around.
RiyaThen you can sell some of your rights to others, and your stake slips below 60%. That's the promoter's catch in a rights issue.
Dilution. None for anyone who takes up their full share. Profit per share still falls before the new money earns anything: ₹9 crore over 5.5 crore shares is about ₹1.64.
Speed and cost. Since the 2025 changes, the board can approve it and the whole issue must be done within 23 working days. No shareholder vote is needed for a plain rights issue of shares, as long as the company's authorised capital has room for them.
The bank loan, borrowing instead
We already have one: ₹20 crore at 10%, which costs ₹2 crore of interest a year.
Who puts the money in. The bank. It doesn't get shares. It gets interest and repayments, on schedule, in good years and bad.
Dilution. None. Sameer keeps 60% and everyone keeps their slice.
Cost, worked out. Interest comes off before profit before tax. Without the loan, FY26 profit before tax would have been 12 + 2 = ₹14 crore, and after 25% tax, ₹10.5 crore. With it, ₹9 crore. So the loan costs shareholders ₹1.5 crore a year after tax, or ₹1.5 crore ÷ 5 crore shares = ₹0.30 a share.
Who must say yes. The board can borrow on its own up to the company's paid-up capital, free reserves and securities premium together. For us that's 50 + 15 + 45 = ₹110 crore. Beyond that, shareholders must pass a special resolution.
What the bank watches. Two things. Debt-to-equity is 20 ÷ 110, about 0.18: 18 paise borrowed for every rupee of owners' money.
And the loan's credit rating, A– (Stable), an agency's view of how safely it will be repaid.
SameerSo borrowing is cheapest?
RiyaIn rupees per share, this one costs ₹0.30 a year. But it has to be paid whatever happens, and every extra crore makes the next loan dearer and the rating shakier. Shares never have to be repaid. That's the trade.
Four questions to ask of any fundraise
Whichever company you're reading about, the announcement should answer these. If it doesn't, the filing will.
- Whose money is it? The public's, institutions', existing owners' or a lender's.
- How many new shares? Divide the profit by the new total to see the dilution before the money earns anything.
- What happens to the promoter's stake? A big fall can change who controls the company.
- What must be paid back? Shares, nothing. A loan, everything, with interest.
SameerI'll take all four questions to the board.
RiyaTake the table too. It's the first time they'll see the routes side by side.
This guide explains how each route works. It isn't advice on any company's choice, or on whether to invest.