IPOs – Types of initial Public Offerings

Disclaimer: Investment/Trading in the securities market such as initial public offering- IPOs is subject to market risk, past performance is not a guarantee of future performance. Associate companies do not guarantee any returns in any of its products or services.

Introduction

When a company sells its shares to the public for the first time it’s called an Initial public offering (IPOs). Majorly companies sell shares to the public to raise funds for business expansion. Then the people who buy the shares and invests in the company IPO become the shareholders of the company. Altogether the entire process of selling shares and giving shareholding to the public is an initial public offering. (Click here to open your Demat account with Kite Zerodha  – Join Zerodha)

Types of IPOs

IPO’s are of two kind IPOs, First FIXED PRICE & second BOOK BUILDING. All the entities who try to raise funds from the market offer IPOs in these two formats. Let’s understand how they are different from each other and what are the advantages and disadvantages of these IPO categories.

Fixed Price

In this type of IPO, the company decides a fixed price of the shares before the launch of the IPO, and the investors have to purchase the shares at that same price. However, the investor doesn’t have to worry about what price he needs to bid when going for a fixed price IPO. In general, the price of a share is mostly lower than that of the current market value. Let’s get a better understanding of fixed price IPO with an example

Ex:-  Stoptoexplore offer IPO for Rs.350 as a fixed price of one share and a minimum of 1000 Shares to get one lot or quantity to get eligible for the IPO, an investor needs to buy 1000 shares of Stoptoexplore for the price of  Rs.3,50,000. (350*1000). The benefit of a fixed price IPO is that the price of a share, in general, is less than the current market value of the shares. Last but not the least Investor gets peace of mind to go for IPO investment without worrying what amount to BID.

Book Building

Similarly, in the book-building IPOs, the company provides the flexibility of a price range for the investors. An individual can bid or Apply for the required quantity of shares in that price range. In the book building IPO, there are two types of pricing, first the floor price and second the Cap price. Let’s get a better understanding of book building IPO with an example

Ex:- Stoptoexplore offers IPO for the price range of Rs.350 – Rs.355 per share at a minimum purchase limit of 1000 shares to get eligible for the IPO. An individual can bid or decides for the price he wants to buy that 1000 shares quantity, as well as he, can also apply multiple lots with the different price ranges. Finally, whichever will be the highest bidding price, the shares will be bought for that price ( Also depending upon the Issuer requirement )

How to Apply for IPO with Zerodha

Firstly, if you don’t have a Demat account then click on Kite – Zerodha to open your Demat Account with one of the leading stock market investment platforms. Secondly, click on the link – Apply for IPO to buy initial public offering with Zerodha.

Click here to open your Demat account with Kite Zerodha  – Join Zerodha