InvestorQ : How does a fixed price IPO differ from a book built IPO?
Aashna Tripathi made post

How does a fixed price IPO differ from a book built IPO?

swati Bakhda answered.
3 years ago
Fixed Price Issue is a type of initial offer where the price of the IPO is fixed in advance. These fixed priced issues were very common in the past but now it is largely dominated by Book Built issues. In a fixed price issue, the management of the company along with the merchant bankers may choose to issue the shares either at par or at a premium. But there is no question of bidding in this case. You just are given one price to apply at and every application has to necessarily be at that price and even the allotment will happen at that price only.
Book Building Issue, the other hand, is an attempt to discover the ideal price of the stock where demand and supply are sufficient to see the issue through. In a book building issue, the issuing company only issues an indicative range. IPO investors must put in their bid based on their own assessment and based on the demand and supply, the price is discovered. For example, if the price band of a book built IPO is Rs.745-750 then a strong response may fix the price at Rs.750 while a reasonable good response may end up pricing the issue at 745. Normally, when an allotment is made at the higher end of the range, then any bids below that price are automatically rejected. In case IPO investors want to avoid the hassles of bidding at a certain price, they can just bid at the “Cut-Off” price and they will be deemed to have applied at the discovered price only.
Oversubscription of IPO: If the total issue is for 1 crore shares and there are valid applications for 8 crore shares then the issue is said to be oversubscribed by 8 times. Normally separate oversubscription figures are made available for the retail portion, HNI portion, and the institutional portion.