Types of IPO

An Initial Public Offering (IPO) allows an unlisted company to offer specified securities to the public for the first time. IPOs can be classified in different ways depending on what you want to understand.

• Fixed-price IPO: The offer price is known before you apply.
• Book-built IPO: Investors bid within a price band, and the final price is discovered through the bidding process.
• Fresh issue: The company issues new shares and receives the proceeds.
• Offer for Sale: Existing shareholders sell shares, and the sale proceeds go to those shareholders.
• An IPO can contain both a fresh issue and an Offer for Sale.

• SME IPOs relate to companies seeking listing on an SME platform and follow applicable regulatory requirements.

  
  

For an investor, the most important difference is how the price is determined and whether the money raised goes to the company or selling shareholders.

A fixed-price IPO offers shares at a price that investors know before they submit their applications.

Suppose a company offers shares at:

₹150 per share

If the IPO lot contains 100 shares, the basic application amount would be:

₹150 × 100 = ₹15,000

The price itself does not change according to individual investor bids during the issue.

What do you know before applying?

You know:

• the offer price,
• the lot size,
• the number of shares you want to apply for, and
• the basic application amount.

Demand for a fixed-price issue is generally known after the issue closes.

SEBI's investor education material distinguishes fixed-price issues from book-built issues by noting that the offer or allotment price is known in advance in a fixed-price process.

Source: Securities and Exchange Board of India (SEBI)

A book-built IPO uses investor bids within an announced price band to discover the final offer price.

Suppose an IPO has a price band of:

₹120 to ₹144 per share

Investors place bids within that band according to the applicable bidding rules.

After the bidding period ends, demand at different price levels helps determine the final offer price.

Simple example

Assume investors submit bids at:

• ₹120
• ₹130
• ₹135
• ₹140
• ₹144

The final price is determined through the book-building process based on the demand received and applicable rules.

Unlike a fixed-price issue, the final issue price is not necessarily known when bidding opens.

SEBI describes book building as a price-discovery process in which investors bid within a price band.

Retail individual bidders can also use the cut-off price option where permitted. This means they agree to accept the final discovered price within the applicable price band.

Source: Securities and Exchange Board of India (SEBI)

The main difference is when and how the offer price becomes known.

Example

A fixed-price IPO may say:

Offer price: ₹100 per share

You know ₹100 before applying.

A book-built IPO may instead say:

Price band: ₹90 to ₹100

You place your bid within that range, and the final offer price is determined through the book-building process.

Neither method guarantees that the share price will rise after listing.

A fresh issue means the company creates and issues new shares to investors as part of the IPO.

The money raised from those new shares goes to the company, subject to the issue expenses and stated use of proceeds.

Example

Suppose a company issues:

1 crore new shares at ₹100 per share

Gross fresh-issue amount:

1 crore × ₹100 = ₹100 crore

The company can use the proceeds for purposes disclosed in its offer document, such as:

• capital expenditure,
• repayment of specified borrowings,
• working capital,
• acquisitions, or
• other stated corporate purposes.

The exact objectives differ from one IPO to another.

A fresh issue also increases the number of shares issued by the company, which can dilute the percentage ownership of existing shareholders.

SEBI defines an IPO as an offer of specified securities by an unlisted issuer to the public for subscription and notes that it may also include an Offer for Sale by existing security holders.

Source: Securities and Exchange Board of India (SEBI)

An Offer for Sale in an IPO means existing shareholders sell some of their shares to public investors.

The company does not receive the sale proceeds from those shares.

The money goes to the shareholders selling their holdings, subject to applicable issue expenses and terms.

Simple example

Suppose an existing shareholder sells:

50 lakh shares at ₹200 per share

Gross OFS value:

50 lakh × ₹200 = ₹100 crore

That ₹100 crore relates to shares sold by the existing shareholder. It is not fresh capital raised by issuing new shares.

Why should an investor check this?

Because a ₹500 crore IPO does not automatically mean the company receives ₹500 crore.

For example:

• Fresh issue: ₹300 crore
• Offer for Sale: ₹200 crore
• Total IPO size: ₹500 crore

The company raises ₹300 crore through the fresh issue, while the ₹200 crore OFS portion represents shares sold by existing shareholders.

An SME IPO is better understood as an IPO by an eligible small or medium enterprise seeking listing on an SME platform rather than as a third pricing method alongside fixed-price and book-built IPOs.

Its applicable eligibility, issue, trading, and listing requirements can differ from a mainboard IPO.

This distinction matters because people often mix several IPO classifications together.

A simple way to separate them is:

So an SME IPO may itself use an applicable pricing mechanism and may contain a fresh issue, OFS, or both, depending on its structure and regulatory conditions.

You should check the IPO structure rather than assuming one type is automatically better than another.

Start with these questions:

1. Check the pricing method. Is the IPO fixed price or book built?
2. Check the price or price band. Know how much you may need to pay per share.
3. Check the fresh issue and OFS split. This shows how much money goes to the company and how much relates to selling shareholders.
4. Check the objectives of the issue. See how the company says it plans to use fresh capital.
5. Read the risk factors. IPOs can lose value after listing.
6. Check the company's financial information. Review revenue, profit, debt, cash flows, and other disclosed figures.
7. Check valuation information. An IPO price should not be judged only by whether one share looks inexpensive.
8. Read the offer documents. The Draft Red Herring Prospectus and Red Herring Prospectus contain important information about the issuer and offer.

SEBI advises investors to refer to the prospectus and its risk factors before applying to a public issue.