What is a Draft Red Herring Prospectus?

Last Updated: 26 Sep 2025

Amidst the recent IPO boom in the Indian startup sector, investors are being presented with ever-increasing options for investments. However, to choose the right business, the Draft Red Herring Prospectus (DRHP) can prove to be a valuable resource.

What is Draft Red Herring Prospectus?

A Draft Red Herring Prospectus (DRHP) is a document that is prepared to introduce a new business or product to a potential investor.

This document should be able to communicate the product vision and target audience. This is not a final document for an investor. It is a way of demonstrating value and providing investors with enough information for them to decide whether they want to invest in the company or not.

It should also include sections on the current status of the business, as well as any risks involved with investing in this company. The DRHP is a document that is used as a loose framework for the initial stages of the IPO process.

It can be considered as an outline of the formal prospectus, and it’s typically created at the beginning of an IPO process. The goal is to give potential investors and company officials an overview of what they will find in the formal prospectus, which is usually prepared after some time elapses following the publication of the DRHP. It contains information about the company’s background, key facts about the latest fundraising, and market research. It also includes details on how much capital will be needed for each investment stage and generally highlights the positive aspects of the company.

How do companies prepare a DRHP?

Here’s a structured approach to understanding how companies meticulously prepare an IPO red herring prospectus:

• Planning

The company’s management and board decide to raise funds via IPO. They appoint investment bankers, legal advisors, and financial experts to guide the process. This ensures strategic alignment and professional support throughout the journey.

• Information Collection 

Detailed company data is gathered, including history, business model, operations, and financial records from past years. Management also provides insights into growth strategies and challenges. This information forms the base of the DRHP.

• Drafting

Experts prepare the DRHP document. It covers company overview, market strategy, risks, financial statements, and regulatory disclosures. The draft aims to give investors a clear understanding of the business and its potential, while complying with official guidelines.

• Legal Check 

The draft gets vetted in detail to ensure that it complies with SEBI rules and corporate governance standards. Disclosure of litigations, risks and legal matters is incorporated. This stage allows transparency, credibility and accuracy before submission to the authorities.

• Filing with SEBI

The DRHP is filed with SEBI for approval. SEBI reads the document and sends comments or asks for changes. The company also makes whatever changes it needs to before approval. This move is for the protection of investors and regulatory compliance.

• Public Sharing

Once cleared, the DRHP is published on SEBI, the company, and the stock exchange websites. Companies also conduct roadshows and presentations to explain the IPO to investors. This helps build interest and attract potential buyers.

• Final Prospectus

Based on SEBI’s feedback and investor inputs, the company prepares the final prospectus. This includes the IPO price and number of shares. The document is then released, marking the official launch of the IPO.

Benefits and Importance of a Draft Red Herring Prospectus (DRHP)

A Draft Red Herring Prospectus is an essential document for both companies and investors. Here are its different benefits:

Provides Company Information

A DRHP gives investors key details about the company. It shows its strengths, knowledge, and position in the industry. This helps investors judge if the company is worth their money.

Acts as a Marketing Tool

Companies can use a DRHP to attract attention. Even if operations have not started, it works as a proof of concept. It creates interest by showing what investors may gain.

Outlines Risks

The document lists possible risks and challenges. This ensures investors understand what could go wrong before they commit funds.

Helps in Fundraising

A DRHP is often the first step in raising money through equity. It allows companies to approach investors early in the process.

Tests the Business Model

It lets companies present their business idea without full legal filings. This saves time and money. It also helps check if the model is viable and if investors are interested.

Gauges Investor Interest

Companies can file a DRHP even without fixed IPO plans. It helps them measure market response before taking further steps.

Supports Investor Decisions

While not fully detailed, a DRHP has enough information for investors to decide. It balances disclosure with flexibility.

Where Can Investors Find a Company’s DRHP?

Investors can access a company’s Draft Red Herring Prospectus (DRHP) through multiple platforms. It is available on the merchant banker’s website, the company’s own website, stock exchange websites, and the official SEBI website. Apart from these, announcements are also made in newspapers and online news portals in different languages for a wider reach.

Difference Between RHP & DRHP

Aspects	Red Herring Prospectus (RHP)	Draft Red Herring Prospectus (DRHP)
Definition	A regulatory document filed with the authority. It includes details of the upcoming IPO except for the issue price and number of shares.	A preliminary version of the RHP filed before an IPO. It has all the details except the final issue price and size.
Timing	Released after getting regulatory approval.	Submitted to regulators first for review and approval before the IPO launch.
Content	Gives information on company operations, promoters, financials, objectives of the issue, and all key investor details.	Contains most of the same information as the RHP, but excludes final price and issue size.
Pricing and Issue Size	Includes IPO price and number of shares.	Does not include the final IPO price or number of shares. The price is decided later.
Public Offering Size	Clearly mentions the total offering size.	States only an approximate size.
Regulatory Approval & Filing	Released after final approval by regulators.	Filed for review and comments. The final RHP is updated after changes suggested by regulators.

Conclusion

In conclusion, the Draft Red Herring Prospectus (DRHP) plays an important role in India’s growing IPO market. It gives details about a company’s business, finances, and risks, helping investors make better choices. By sharing this information, the DRHP builds trust and supports a smoother IPO process for companies and investors.

Frequently Asked Questions

What information does this draft red herring prospectus provide?

A DRHP is a preliminary document that provides information about the business and its management, product or service, potential markets, and financing. It also includes financial projections.

What is a red herring prospectus and a full prospectus?

A DRHP is a preliminary document that is created before a full prospectus. It outlines the business plan, financial information and may include summaries of the company’s major products or services. A red herring prospectus includes less detailed information than a full prospectus.

Why is the red herring fallacy bad?

Red herring fallacy is a breach of the customer’s/investor’s trust because the company is selling them a falsely modified version of the product/service. According to SEBI’s official guidelines on DRHPs, there should be no incorrect/exaggerated information in the DRHP before it’s presented to the investors.

What is the validity period of the DRHP?

The Draft Red Herring Prospectus (DRHP) is valid for a period of 12 months from the date of issue, after which it must be updated or refiled to comply with regulatory requirements and ensure accurate information is provided to investors.

How long does SEBI take to approve DRHP?

The Securities and Exchange Board of India (SEBI) typically takes 30 to 60 days to review and approve a Draft Red Herring Prospectus (DRHP), depending on the completeness and accuracy of the submitted documents and any additional information requested.