IPOs or Initial Public Offerings function as a brilliant process through which companies, looking to raise capital to support their growth, offer their shares to the public.

The IPO process is extremely straightforward, where the main purpose of the company is to sell its securities to public investors. The more the investors buy into the IPO, the more capital the company can raise.

If you are looking to invest in an IPO, then there are two types of IPO you should be aware of. In this blog, we will have a look at both of them and how they can influence your investment plan.

Different Types of IPOs

Here is a look at the two different types of IPOs:

• Fixed Price Issue IPOs

• Under this IPO, the company sets a fixed price for the shares being issued to the investors
• To decide on this price, a merchant banker is hired by the company.
• The main job of the merchant banker is to calculate the current company value and its future prospectus. 
• After going through all the details and doing extensive research, the price of a particular share is determined. 
• This is done to help the company raise the capital the company required to grow and become profitable.  
• The price of the shares is announced before the issuing of the IPO and when subscribing, investors need to pay this price up-front.  

• Book Building IPOs

• Under the book-building IPO issues, share prices are made public during the ipo meaning process.
• Though there is no fixed price in the book-building issue, there is a price band that investors can choose from 
• Here, the lowest band is called the “floor price,” and the highest is the “cap price.”
• Investors who want to subscribe to the book-building issue have to bid for the shares at the price they prefer within a particular time frame
• This is to be done before the company sets the final share price.
• At the end of the process, the final price is decided based on the bids received by the company from investors.

Differences between the IPOs

Listed below are the main differences between the fixed price issue and the book-building issue:

Conclusion

IPOs can undoubtedly be an exceptional form of investment for you if you are looking to play a part in the growth of a newly public company. This is why, before jumping on the bandwagon you need to analyse every aspect of the IPO. 

It is important to keep in mind the two types of IPOs being talked about above and design your investment strategy in alignment with the one that calls to you the most.