What is IPO? | What are the two types of IPOs?

IPO
IPO

The full form of IPO is Initial Public Offering. When a company issues its common stock or shares to the public for the first time, it is called IPO. IPO is issued by limited companies so that they can get listed on the stock exchange. After listing on the stock market, the shares of the company can be bought in the stock market. The company issues IPO to raise funding in case of investment or expansion.

In IPO, when a company issues its common stock or shares to the public for the first time, it is called IPO. The two main reasons for a firm to start an IPO are to raise capital and to enrich former investors.

Types of IPO

There are two types of IPOs they are,

  • Fixed Price IPO
  • Book Building IPO

1. Fixed Price IPO

Fixed Price IPO can be referred to as the issue price that some companies set for the initial sale of their shares. Investors get to know about the price of the shares which the company decides to take public. The demand for shares in the market can be ascertained after the issue is closed. If investors participate in this IPO, they must ensure that they pay the full value of the shares while applying.

2. Book Building IPO

In the case of book building, the company initiating the IPO offers investors a 20% price band on the shares. Interested investors place bids on the shares before the final price is fixed. Here investors need to specify the number of shares they wish to buy and the amount they are willing to pay per share.

The lowest share price is known as the floor price and the highest stock price is known as the cap price. The final decision regarding the price of the shares is determined by the bids of the investors.

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