Types of IPOs in India
Not all IPOs are the same. Before you apply for any IPO, you need to understand what kind of offering it is — because the type of IPO tells you a great deal about who benefits from it and how the price was determined.
There are three key dimensions to classify any IPO in India:
- Pricing mechanism — Fixed Price vs Book Building
- Share structure — Fresh Issue vs Offer for Sale (OFS)
- Exchange and size — Mainboard vs SME
Let us go through each one.
Dimension 1: Pricing Mechanism
Fixed Price IPO
In a fixed price IPO, the company decides the price upfront. Investors know exactly what they are paying before the issue opens. There is no bidding, no price band — just a single, predetermined price.
Fixed price IPOs are rare in today's mainboard market but still appear in some SME IPOs. The limitation is obvious: the company sets the price without knowing what the market thinks it is worth. This leads to either underpricing (leaving money on the table) or overpricing (poor listing performance).
Book Building IPO
In a book building IPO — which covers virtually all large IPOs in India today — the company offers a price band, typically a 10–20% range. For example, ₹440 to ₹460 per share.
Investors bid within this range during the IPO subscription period. Institutional investors (QIBs) bid first as anchor investors, providing a price signal. Retail and HNI investors then bid during the open period.
After the IPO closes, the company and its bankers analyse all bids and determine the cut-off price — the price at which the issue is fully subscribed. All investors who bid at or above the cut-off price receive allotment (subject to oversubscription rules). Those who bid below the cut-off get their money back.
Retail investors have the option of applying at the cut-off price — meaning they agree to pay whatever the final price turns out to be within the band. This is almost always the better option for retail applicants.
| Fixed Price | Book Building | |
|---|---|---|
| Price | Set upfront | Determined by demand |
| Investor input | None | Bids within a range |
| Price discovery | No | Yes |
| Common in | Some SME IPOs | All mainboard IPOs |
| Risk of overpricing | Higher | Lower |
Dimension 2: Share Structure
Fresh Issue
A fresh issue means the company is creating new shares and selling them to the public. The money raised goes directly into the company's bank account and is used for the stated purpose — expansion, debt repayment, working capital, acquisitions.
Fresh issue = company gets the money = your capital is being put to work in the business.
When evaluating an IPO, a large fresh issue component is generally a positive signal — the company needs capital to grow. However, it also means dilution for existing shareholders, including you after listing.
Offer for Sale (OFS)
In an OFS, no new shares are created. Existing shareholders — promoters, private equity investors, or early employees — sell their shares to the public.
The money goes to the selling shareholders, not to the company.
This is a crucial distinction. An IPO with a 100% OFS structure raises zero capital for the company. It is purely an exit mechanism for existing investors.
OFS is not inherently bad — sometimes early investors need liquidity, and the company is already well-capitalised. But a very large OFS component, especially by promoters, deserves scrutiny. Ask yourself: why are the people who know this business best choosing to sell now?
Fresh Issue + OFS (Most Common)
Most large IPOs in India are a combination — a fresh issue to raise growth capital, and an OFS to give early investors partial liquidity. The ratio matters.
Example: Company X raises ₹3,000 crore total. ₹2,000 crore is fresh issue, ₹1,000 crore is OFS by a PE fund that invested 5 years ago. This is a healthy structure — the company gets capital, and an early investor gets a reasonable exit.
Red flag structure: Company Y raises ₹3,000 crore total. ₹500 crore fresh issue, ₹2,500 crore OFS entirely by promoters. This warrants deeper investigation.
Dimension 3: Mainboard vs SME IPO
Mainboard IPO
Mainboard IPOs list on the main segments of NSE (Capital Market segment) or BSE. These are larger companies with established track records, higher minimum capital requirements, and stricter eligibility criteria.
SEBI requires mainboard IPO applicants to have:
- Net tangible assets of at least ₹3 crore
- Average operating profit of ₹15 crore over the last 3 years (or meet alternative criteria)
- A minimum post-IPO paid-up capital of ₹10 crore
Mainboard IPOs have higher liquidity, broader analyst coverage, and are generally (though not always) lower risk than SME IPOs.
SME IPO
SME IPOs list on dedicated SME platforms — BSE SME or NSE Emerge. These are smaller companies at earlier stages of growth, with lower capital requirements and different rules.
Key differences from mainboard:
- Minimum application size is much higher (typically ₹1–2 lakh vs ₹14,000–15,000 for mainboard)
- Lower liquidity post-listing
- Less analyst coverage
- Higher potential returns but significantly higher risk
- Market making is mandatory for 3 years post-listing
SME IPOs deserve their own detailed treatment — which is exactly what Book 2 of this series covers.
Why This Matters Before You Apply
Understanding these three dimensions helps you ask the right questions before applying:
- Is the price fairly discovered (book building) or arbitrarily set (fixed price)?
- Is the company raising money for growth (fresh issue) or are insiders exiting (OFS)?
- Is this a regulated mainboard company or an early-stage SME with higher risk?
None of these dimensions alone determines whether an IPO is good or bad. But together, they give you a framework for evaluation that goes beyond just looking at the GMP.