Types of IPOs and Which One is Right for You

Initial Public Offerings (IPOs) are a milestone in the life cycle of a private company. It is how a private company goes public by selling its shares to investors for the first time. For investors, IPOs provide a chance to invest in a company at an early stage of its journey in the public market. However, before investing, one needs to know about the IPO allotment status, types of IPO, and how to select the one that suits your investment objective.

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IPO Allotment Status: What It Means

Once a shareholder has applied for an IPO, the following is to wait for allotment. Allotment status in IPO means granting shares to those applicants. Since IPOs tend to get oversubscribed, particularly popular ones that gather a lot of interest, applicants cannot get all shares.

IPO allotment is usually made through a lottery for retail investors. The basis of allotment is released by the registrar of the IPO once the subscription period ends. Investors can find out their IPO allotment status on the registrar’s website or stock exchange websites by entering application details like PAN, application number, or demat account number.

Knowing your allotment status assists in planning finances. If the shares are allotted, the amount is deducted from your bank account, and shares are credited to your demat account. If not, the blocked amount is unblocked, and you can look for alternative investment opportunities.

Types of IPOs and Which One is Suitable for You?

When looking to invest in an IPO, knowing the various types is just half the deal. Selecting the appropriate IPO also involves your investment approach, risk tolerance, and market scenario.

Fixed Price IPO—Ideal for New Investors

Fixed-price IPOs may be suitable for investors who prefer simplicity. The clarity on pricing allows investors to make straightforward decisions. However, these IPOs may lack the market-based pricing flexibility of book-building issues. If you’re starting and want a transparent structure, this type might be appropriate.

Book Building IPO—Good for Active Investors

Book-building IPOs can be a preferable option for those who keep an eye on the market and know about demand patterns. The mechanism of price discovery can determine fair valuation. Such an IPO can provide opportunities if efficiently priced, but it also has the requirement for an improved understanding of the bidding and allocation processes.

Offer for Sale—For Experienced Investors

OFS is highly appropriate for mature investors who already understand market trends and regulatory structures. Because the company is not seeking new capital, the purpose and financial effect vary from a conventional IPO. If diversification into existing listed companies or industries is part of your strategy, OFS may fit your portfolio.

Final Thoughts

Knowing the IPO allotment status is crucial for any investor investing in the primary market. It provides clarity regarding whether you have been allotted shares and what to do next. Another important aspect is knowing the types of IPOs—fixed price, book building, and offer for sale—since each has varying implications for investors.

Frequently Asked Questions

1. What are the main types of IPOs?

There are primarily two types of IPOs:

Fixed Price IPO: The company sets a fixed price for the shares, and investors know the price before subscribing.
Book Building IPO: The company provides a price range (floor and cap price), and investors bid within this range. The final price is determined based on demand.

2. What is a Fixed Price IPO?

In a Fixed Price IPO, the company decides the offer price in advance. Investors must pay the full amount when applying, and shares are allocated based on demand.

3. What is a Book Building IPO?

In a Book Building IPO, the company sets a price band and invites bids from investors. Based on demand at various price levels, the final offer price is discovered, making it more market-driven.

4. What is the difference between Fixed Price and Book Building IPOs?

The main differences are:

Price Discovery: Fixed Price is pre-determined; Book Building is demand-driven.
Transparency: Book Building offers real-time demand updates; Fixed Price doesn’t.
Application Payment: Full payment is required upfront in Fixed Price; only blocked funds (not charged) in Book Building.

Are there other IPO types besides Fixed and Book Building?

Yes, additional IPO types include:

Dutch Auction IPO: Investors bid the price and quantity, and the final price is set at the highest price where all shares can be sold.
Rights Issue: Not an IPO in the traditional sense, but existing shareholders are offered new shares at a discount.
Follow-on Public Offer (FPO): A listed company issues additional shares after an IPO.

7. Which type of IPO is better for retail investors?

Book Building IPOs are generally preferred by retail investors due to better price discovery and allocation transparency. However, each investor should evaluate the risks and company fundamentals before deciding.