Want to invest in IPOs? See all you need to know about 'fixed price issue' and 'book-built issue'

The prospective investors interested in investing in an initial public offering (IPO) must be aware of the concepts called 'fixed price issue' and 'book-built issue'.

See all you need to know about 'fixed price issue' and 'book-built issue'. Source: Reuters

Fixed Price issue and Book Building: The prospective investors interested in investing in an initial public offering (IPO) must be aware of the concepts called 'fixed price issue' and 'book-built issue'. The National Stock Exchange (NSE) has recently informed about the differences between these two issues from its official Twitter handle. In case of further details and queries, the interested individuals can login to the official website of NSE at nseindia.com.

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In this context, one must be aware of what is an IPO. As per the official NSE website, a corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

Now, the recent tweet from the official Twitter handle of NSE said, "Understand how pricing plays an important part in differentiating the types of issues. Save for your reference and don't forget to share if you think this was useful."

Understand how pricing plays an important part in differentiating the types of issues.
Save for your reference and don't forget to share if you think this was useful.#InvestorAwareness #StockMarketEducation #NSE #NSEIndia pic.twitter.com/6f06hRlMGu

— NSEIndia (@NSEIndia) December 13, 2021

The two types of issues are as follows:

Fixed Price Issue - When the issuer at the outset decides the issue price and mentions it in the offer document, it is commonly known as 'fixed price issue'.

Book Built Issue - When the price of an issue is discovered on the basis of the demand received from the prospective investors at various price levels, it is called 'book-built issue'.

The prospective investors must know the difference between 'fixed price issue' and 'book-built issue'. As per the NSE website, in book building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue. In case of book building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

As per SEBI guidelines, an issuer company can issue securities to the public though prospectus in the following manner:

1) 100 per cent of the net offer to the public through book building process

2) 75 per cent of the net offer to the public through book building process and 25% at the price determined through book building. The fixed price portion is conducted like a normal public issue after the book-built portion, during which the issue price is determined.

For further details and queries, the interested individuals can login to the official website of NSE at nseindia.com.

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Initial Public Offer (IPO)National Stock Exchange (NSE)