Process of IPO Investing & Its Types

IPO Investing Process: IPO Investing (Initial Public Offering) can be done in either fixed price or book building or both ways. In a fixed price, the price of share presented in the market are already decide or fixed that cannot be changed. In book building, the scope of the price is fixed for the shares within which the investors have to bid. Booker's help is taken to fix the price band and to complete the bid work. The job of a bookkeeper is usually done by a company specializing in an investment bank or securities case.

100% advance payment is made in the fixed price method and after the allocation, the amount is returned, while in the Book Building Method the payment is made after allocation.

50% of the allocation in the fixed price method is reserved for investment below 2 lakh and for the remaining upper amount investors, while 50% allocation in the Book Building Method is reserved for QIB and remaining 35% is for small investors and the remaining is reserved for the other investors.

IPO's share price pricing is fixed in two ways:
1. Price Band 2. Fix Pricing

1. Price Band: Most companies, who are allowed to bring an IPO, can decide the price of their shares. However, infrastructure and some other areas companies have to seek permission from SEBI and the Reserve Bank. The company's board of director, along with booker, sets price band together. A total of 20 percent price band is allowed in India. This means that the maximum limit of the band cannot exceed 20% with floor prices.
2. Fix Pricing: IPOs are now very low on fixed pricing. In this process, the company determines a fixed price of Shares by evaluating its assets, liabilities and every financial aspect. This value is fixed from the first day of the Issue to the last day, and the stock is sold at the same price. The demand for securities is known on the last for issue date only. After this, it is released according to demand.