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Important IPO MCQs for UPSC, SSC, Banking & State PCS Exams

Q1.

Consider the following statements about an Initial Public Offering (IPO):

1. IPO is the process by which a privately held company offers its shares to the public for the first time.

2. After an IPO, the company becomes a private limited company.

3. IPOs are regulated in India by SEBI under the Securities Contracts (Regulation) Act, 1956.

Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Q2.

Assertion (A): Companies go for IPOs to raise capital for business expansion.
Reason (R): IPOs help companies to reduce promoter holdings and repay existing debts.

Choose the correct option:
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Q3.

Which of the following are advantages for investors in applying for an IPO?

1. Opportunity to buy shares at the issue price before listing.

2. Guaranteed capital gain after listing.

3. Transparency ensured through SEBI-mandated disclosures.

Select the correct answer using the code below:
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Q4.

Match the following types of IPO issues with their correct descriptions:

Select the correct match using the code below:
(a) A–1, B–2, C–3
(b) A–2, B–1, C–3
(c) A–3, B–2, C–1
(d) A–2, B–3, C–1

Q5.

In an IPO, the term “price band” refers to —
(a) The difference between opening and closing price on listing day
(b) The minimum and maximum price range within which investors can bid for shares
(c) The SEBI-approved price ceiling for promoters
(d) The difference between issue price and market price after listing

Q6.

Consider the following statements:

1. IPO allotment to retail investors is done through a lottery system when the issue is oversubscribed.

2. Qualified Institutional Buyers (QIBs) are given preference over Non-Institutional Investors (NIIs) in allotment.

3. IPO shares are credited directly to investors’ demat accounts.

Which of the above statements are correct?
(a) 1 and 3 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 only

Q7.

When a company issues additional shares after an IPO, it is called —
(a) Follow-on Public Offer (FPO)
(b) Offer for Sale (OFS)
(c) Rights Issue
(d) Bonus Issue

Q8.

Consider the following pairs:

Which of the above pairs is/are correctly matched?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Q9. 

Company “X” launches an IPO with a face value of ₹10 per share and an issue price of ₹250. What does this indicate?
(a) The company is selling shares at par value.
(b) The company is issuing shares at a premium of ₹240 per share.
(c) The company is issuing shares at a discount of ₹240 per share.
(d) The face value and issue price are the same.

Q10. 

Which of the following statements regarding Offer for Sale (OFS) is correct?

1. OFS is used by existing shareholders, not the company, to sell their holdings.

2. OFS is available only for listed companies.

3. Proceeds from OFS go directly to the company’s account.

Select the correct code:
(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 2 and 3 only

Answers and explanations for the 10 IPO MCQs:

Q1.

✅ Answer: (b) 1 and 3 only
Explanation: IPO converts a private company into a public one. It is regulated by SEBI under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, framed under the Securities Contracts (Regulation) Act, 1956.

Q2.

✅ Answer: (b) Both A and R are true, but R is not the correct explanation of A.
Explanation: Raising capital for expansion is the main objective; debt repayment or promoter dilution are secondary outcomes.

Q3.

✅ Answer: (b) 1 and 3 only
Explanation: IPOs allow early access at issue price and ensure transparency due to SEBI disclosures. Capital gains are not guaranteed.

Q4.

✅ Answer: (b) A–2, B–1, C–3
Explanation:

• Fixed Price Issue → Price decided in advance.
• Book Building → Price discovered through bidding.
• Hybrid → Mix of both methods.

Q5.

✅ Answer: (b) The minimum and maximum price range within which investors can bid for shares.
Explanation: The price band includes a floor price and a cap price, guiding investors in placing bids.

Q6.

✅ Answer: (a) 1 and 3 only
Explanation: Retail investors get allotment via lottery if oversubscribed; shares are credited to demat accounts. QIBs get a reserved portion but not “preference” in allotment.

Q7.

✅ Answer: (a) Follow-on Public Offer (FPO)
Explanation: FPO is when a listed company issues new shares to the public after its IPO to raise additional funds.

Q8.

✅ Answer: (a) 1 and 2 only
Explanation:

• Anchor investors invest before the IPO opens.
• Oversubscription = excess demand.
• Grey Market Premium (GMP) is unofficial and not SEBI-approved.

Q9.

✅ Answer: (b) The company is issuing shares at a premium of ₹240 per share.
Explanation: Premium = ₹250 (issue price) − ₹10 (face value) = ₹240. Indicates investor confidence and strong valuation.

Q10.

✅ Answer: (b) 1 and 2 only
Explanation: In Offer for Sale, existing shareholders sell shares of listed companies. The proceeds go to them, not the company.