Types of IPO– The company can raise funds and capital through an initial public offering (IPO) for its growth and expansion. Raising money is done in the primary market by issuing the shares to the common public. When people buy the equity, the company gets a boost of capital.
And in return, people get the part of the profit proportional to the shares. If things go well in the company, it gets mutual benefits. For investing in different types of IPO, one needs to gain knowledge of investing because if you are the wrong IPO type, the chances of loss can be increase. Stock Market Institute in Delhi is the best place to gain complete investing knowledge.
Types of IPO
- Fixed Price Issue
- Booked Price Issue
The offering of an IPO can be made in two ways: one is a fixed price issue, and another is a Booked price issue. Or a combination of both is possible.
Fixed Price Issue
In order to make this type of public issue, first, the assets as well as liabilities of the company are evaluate. All the other financial aspects have gone through and finally, the company along with its underwriters manage to come at a fixed price per issue. This price is decide keeping in mind all the financial matters of the business.
This fixed price is mentioned in a document which compares and justifies the price of an issue with other factors – qualitative as well as quantitative. Hence, the price is fixed and on the basis of this fixed price demand is generated. Sometimes, the demand is very high as compare to the amount of securities to be issue, this leads to oversubscription.
Book Building Issue
The concept of the book building issue is a newer concept as compared to the concept of fixed price issue. Contrary to the fixed price issue, in the book building issue, the price of the issue is known during the process of initial public offer (IPO). In this process, there is not a fix price, but a band of different prices with the lowest and highest prices name floor price and cap price respectively.
This price band is mentioned in the order document and it allows the public to apply for the shares in the desired quantity and at the price which they would be willing to pay for that particular security. The price of the issue is decide on the basis of those bids by the people. The price of issue lies between the floor price and cap price as stated in the price band. The issue price is known everyday as the book goes on building, hence the name book building issue will use.
These are the two types of IPO. To know more about such concepts you can enroll for the best Stock Market Course in Delhi.
Difference between Both Issues?
|The basis of Nature||Fixed Price Issue||Book Building Issue|
|Pricing||The price of a share is printed in the order of the document. And that price is fixed on the first day of the issue||The exact cost of a claim is not fixed. Only the bond price is fixed. After the closing date of the bid, the price becomes fit.|
|Demand||After the close issue, it becomes known||It can be learned every day|
|Payment||In advance, 100% payment will be made. And after the allocation refund is given||Only after the allocation payment is made.|
|Reservations||Below two lakhs, 50% of investments are reserved, and the remaining is for the highest amount.||For QIBS, 50% of allocation is reserved. For small investors, 35% and the remaining is for different categories of investors.|
At IPO, the fixed price may undervalue the shares of the company. In a fair world, that price is lower than the market value. As a result, like hot cake, these shares are sold, and revalue of the company can be quickly done by investors. As far as the company and its pre-IPO shareholders are concerned, they may have given away a sizable part.
Relatively book building process is more efficient. The demand and supply of shares are matched at the claim’s fix price. Until the fix price is decide, there is no price leak issue. Once the price is set after the closure of the IPO, manually, it works as beneficial.
There is a cascading effect in fixed price issues in demand.
Investors in the book-building process expose considerable vagueness.
The Final Say
Comparing book-building issue shares, the number of fixed price issue shares is more. But after the correction in market price, the capital gathered is more in book building issues than fixed issues. Book building issue itself, making its place in the Indian Stock Market.