By ipomarket.in Editorial Team · Last reviewed: 2026-08-10
Disclaimer: This article is for informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read the offer document carefully and consult a SEBI-registered investment advisor before investing.
When you read about an upcoming IPO, you will run into terms like "book-built", "fixed price", "fresh issue" and "offer for sale". These are often used loosely, which confuses many first-time investors. The important thing to understand up front is that these words describe two separate features of an IPO, not one.
One set of terms (book building and fixed price) describes how the share price is decided. The other set (fresh issue and offer for sale) describes who gets the money you pay. Mixing the two is a common mistake. This guide walks through each, keeps the distinction clear, and points to the SEBI rules that govern them.
The two pricing methods: book building vs fixed price
SEBI recognises two main ways to price a public issue in India: the book-building method and the fixed price method. Both are widely used on the NSE and BSE.
Book-built IPOs
In a book-built issue, the company does not announce a single price. Instead it publishes a price band with a lower and an upper limit (for example, ₹75 to ₹80 per share). Investors then place bids anywhere within that range during the bidding window. Once bidding closes, the final issue price, called the cut-off price, is fixed based on the overall demand received.
SEBI introduced book building in India in 1995 to make price discovery more market-driven. Today most mainboard IPOs, including those from technology, pharmaceutical and financial companies, use this method. You can read more about how the IPO price band works in our separate explainer.
Under SEBI's ICDR Regulations, 2018, the gap between the floor price and the cap of the band cannot exceed 20%. The price band must be published at least two working days before the issue opens, through the Red Herring Prospectus (RHP).
A useful detail for retail applicants: in mainboard book-built IPOs you can apply at any price within the band or simply at the "cut-off price", which means you agree to pay whatever final price is discovered. In SME IPOs, however, applying at the cut-off is not allowed; you must bid at a specific price within the band.
Fixed price IPOs
In a fixed price issue, the company decides and discloses the exact price before the offer opens. There is no bidding range. When you apply, you already know the cost per share.
This method is simpler and cheaper to run, which is why it is used mostly by small and medium enterprises listing on the NSE Emerge and BSE SME platforms. For a company with a small issue size, the cost and time of running a full book-building process is often not worth it. If you want to understand how SME issues differ more broadly, see our note on mainboard vs SME IPOs.
Book building vs fixed price at a glance
| Feature | Book-built | Fixed price |
|---|---|---|
| Price | Price band; final price discovered after bidding | Single price fixed in advance |
| Price discovery | Market-driven, based on demand | Set by the company |
| Typically used by | Larger mainboard issues | SMEs, smaller issues |
| Cost and speed | Costlier, slower | Cheaper, simpler |
| Demand visibility | Real-time subscription data | Limited until close |
Book building has the advantage of letting demand set a fair, market-tested price rather than one chosen only by the company. Its downsides are that it is more expensive and slower, and it suits larger issues better than small ones. Fixed price scores on simplicity and transparency of cost for the applicant, but offers no live price discovery.
The two offer structures: fresh issue vs offer for sale
Now to the second, separate question: where does your money go? This is decided by the offer structure, not the pricing method. An IPO can be a fresh issue, an offer for sale (OFS), or a mix of both, and it can be either book-built or fixed price regardless.
Fresh issue
In a fresh issue, the company creates and sells new shares. The money you pay goes to the company itself, which can use it for expansion, repaying debt, working capital or other stated purposes. Because new shares are created, the total share count rises, which dilutes the ownership percentage of existing shareholders.
Offer for sale (OFS)
In an OFS, no new shares are created. Existing shareholders, typically promoters or early institutional investors, sell part of their existing holdings to new investors. The money goes to those selling shareholders, not to the company. As a result, the company's share capital does not increase and there is no fresh dilution of earnings per share from new share creation.
A point of possible confusion: SEBI also uses "OFS" for a separate stock-exchange mechanism, launched in 2012, that lets promoters of already-listed companies sell shares directly on the exchange, mainly to meet minimum public shareholding norms. This exchange OFS route is available to the top 200 companies by market capitalisation, has a maximum issue period of one trading day, uses a floor price set by the seller, and reserves only 10% of shares for retail investors. This is different from the OFS component within an IPO, though both share the core idea of existing shareholders selling their stake.
Why the distinction matters to you
The fresh-issue versus OFS split tells you whether the IPO is raising growth capital or mainly giving early backers an exit. Neither is automatically good or bad, but a large OFS-heavy offer means the money is going to sellers rather than into the business. This is one of the things worth checking in the offer document. Our guide on how to read a DRHP explains where to find the fresh issue and OFS breakup.
How the two axes combine
Because pricing and structure are independent, an IPO can be any combination:
- Book-built + fresh issue
- Book-built + OFS
- Book-built + both (very common for large mainboard issues)
- Fixed price + fresh issue (common for SMEs)
When you look at an offer, ask two questions separately: how is the price being set, and who receives the proceeds? Answering both gives you a clearer picture than treating the labels as one blob.
Investor categories in book-built IPOs
In book-built mainboard IPOs, shares are split across Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), and Retail Individual Investors (RIIs) to ensure broad participation. Retail investors are allotted at least 35% of the issue in these cases. This is a much larger retail share than the 10% reserved in the exchange-based OFS mechanism described earlier. Our explainer on QIB, NII and retail categories covers this in detail.
Real examples
Zomato's 2021 IPO was a book-building issue with a set price band that saw heavy oversubscription. Paradeep Phosphates (2022) is often cited as a hybrid that combined elements of fixed and book-building components. These are historical references drawn from secondary sources, so treat the specifics as illustrative rather than exact.
FAQ
What is the difference between a book-built and fixed price IPO?
A book-built IPO uses a price band, and the final price is discovered after investors place bids based on demand. A fixed price IPO sets one price in advance, which you know before applying. Book building is common for larger mainboard issues, while fixed price is used mostly by SMEs.
Does the company get money in an offer for sale (OFS)?
No. In an OFS, existing shareholders sell their own shares and receive the proceeds. The company does not raise fresh capital and its share capital does not increase. In a fresh issue, by contrast, new shares are created and the money goes to the company.
Can an IPO be both fresh issue and OFS?
Yes. Many large mainboard IPOs combine a fresh issue component (raising money for the company) with an OFS component (letting existing shareholders sell part of their stake). The offer document shows the split between the two.
How wide can a book-built IPO price band be?
Under SEBI's ICDR Regulations, 2018, the difference between the floor and cap of the price band cannot exceed 20%. The band must also be published at least two working days before the issue opens.
Why do SMEs prefer fixed price IPOs?
Fixed price issues are simpler and cheaper to run. For companies with smaller issue sizes listing on NSE Emerge or BSE SME, the extra cost and time of a full book-building process is usually not justified.
The takeaway
Remember the two axes. Book building and fixed price describe how the price is set. Fresh issue and OFS describe where the money goes. Keeping them separate helps you read any IPO offer more clearly and understand what you are actually buying into.
For more, browse the upcoming IPO calendar and our full news section.
Last reviewed: 2026-08-10 by the ipomarket.in Editorial Team.