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Every IPO prospectus mentions a pricing mechanism, but most first-time investors skip straight past it to the GMP and subscription numbers. That's a mistake, because whether an issue is priced through the fixed price method or the book building method changes how you should read the price band, what "cut-off price" even means, and why the final price can move during the bidding window.
This guide breaks down both methods, why book building has become the default for nearly every mainboard IPO, and what each one means for how you apply.
What Is a Fixed Price Issue?
In a fixed price issue, the company and its merchant banker arrive at a single, final issue price before the IPO opens, based on the company's own valuation exercise, comparable listed peers, and business fundamentals — without taking live market bids into account. This exact price is stated in the prospectus, and every investor who applies pays that same price, full stop.
Because there's no live bidding, there's also no price band, no "cut-off price" option, and no possibility of the price moving once the issue opens. What you see in the prospectus is what you pay.
What Is Book Building?
In a book building issue, the company doesn't fix a final price upfront. Instead, it announces a price band — a floor price and a cap price, typically a few percent apart — and invites investors to bid for shares at any price within that band (or in fixed price increments called "tick sizes"). The final issue price is then "discovered" based on the pattern of demand received across all the bids.
Company announces the price band
The Red Herring Prospectus (RHP) discloses a floor price and cap price — for example, ₹95 to ₹100 per share — rather than one fixed number.
Investors bid within the band across three days
Retail, NII, and QIB investors submit bids specifying quantity and price (or select "cut-off price," available only to retail). The demand at each price point builds up a live "book" — hence the name book building.
Final price is discovered from the demand pattern
After bidding closes, the company and merchant banker analyse where demand cleared and finalise the issue price — usually at or near the cap price if the issue is well subscribed.
Allotment proceeds at the finalised price
Everyone who bid at or above the final price — or selected cut-off price — is eligible for allotment at that single final price, regardless of what price they originally bid within the band.
Fixed Price vs Book Building — Side-by-Side
| Factor | Fixed Price Issue | Book Building Issue |
|---|---|---|
| Price disclosed upfront | Yes — single final price | No — only a price band (floor–cap) |
| How price is decided | Issuer + merchant banker's own valuation | Discovered from investor bidding demand |
| Cut-off price option | Not applicable | Available to retail investors |
| Minimum retail reservation | At least 50% of net offer | Depends on category structure (min 35% typical) |
| Prevalence today | Rare — mostly small SME issues | Standard for virtually all mainboard IPOs |
| Price can change during bidding | No | Band can be revised within SEBI limits |
Why Book Building Dominates Mainboard IPOs Today
Book building lets genuine market demand set the price instead of the issuer estimating a number in isolation, which tends to produce pricing that both institutional and retail investors have effectively "voted" on through their bids. It also gives companies flexibility — if demand is exceptionally strong, the price can be finalised near the top of the band rather than leaving money on the table with a fixed price set too conservatively.
SEBI's regulatory framework has also pushed the market this way: mainboard issues where at least 75% of the offer must be allotted to QIBs are required to use the 100% book building method. Since most mainboard IPOs today structure their QIB allocation this way, fixed price issues have become uncommon at the mainboard level and are seen mostly among smaller SME IPOs, where disclosure and process requirements are comparatively lighter.
Can the Price Band Move During Bidding?
Yes, but only within limits. If the company revises the price band during the bidding period, SEBI rules cap how far it can move — the revised cap price cannot exceed 120% of the floor price of the original band. When a price band revision happens, the bidding period is typically extended by a minimum of three additional working days so investors get a fair chance to revise their own bids in response.
Which Method Should Influence Your Decision to Apply?
The pricing method itself isn't a signal of IPO quality — plenty of solid, well-run companies have listed through both methods over the years. What matters more is understanding which method you're dealing with so you apply correctly: in a fixed price issue, simply confirm the fixed price and apply; in a book building issue, either bid at the cap price or select cut-off price if you don't want your application at risk of rejection.
Frequently Asked Questions
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