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Updated on March 9, 2023

The first step of investment in a company is to know more about the company and all the pros and cons of the offer made. This is where the prospectus of the company comes into picture.

A prospectus is the legal offer document or the blueprint of the company and the securities offered by it and is issued for inviting public subscription. There are many types of prospectus that are issued by a company seeking public funds. These include:

a. Deemed Prospectus
b. Draft offer document
c. Abridged Prospectus
d. Draft Red Herring Prospectus
e. Red Herring Prospectus
f. Shelf prospectus
g. Letter of offer
h. Placement document

Importance of prospectus in IPO

A draft red herring prospectus or Red Herring Prospectus contains all the details of the IPO issue including
a. offer size,
b. nature of securities offered,
c. the eligible investors
d. the share of investment permissible in each category,
e. company’s business model,
f. existing promoters’ shareholding
g. financial performance of the company etc.

Investors must carefully go through these details before deciding on the IPO investment.