Types of IPOs in the Stock Market.

Discover the different types of IPOs in the stock market, including Mainboard IPOs, SME IPOs, Fixed Price IPOs, and more. Learn which type suits your investment goals.

Type of IPOs in Stock Market – Initial Public Offerings (IPOs) play a vital role in the stock market, providing companies with a platform to raise capital while offering investors an opportunity to buy shares in growing businesses. However, not all IPOs are the same. Depending on the size of the company, its goals, and the regulations it meets, different types of IPOs exist in the stock market.

In this blog, we’ll dive into the various types of IPOs, their unique features, and why understanding these distinctions matters to investors.

1. Mainboard IPO

Overview

A Mainboard IPO is the most common type of IPO, issued by well-established companies seeking to list on major stock exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Key Features

• Targets large-scale businesses with high capital requirements.
• Requires strict compliance with regulations set by SEBI (Securities and Exchange Board of India).
• Attracts a broad investor base, including retail, institutional, and HNIs (High Net Worth Individuals).

Who Should Invest?

Investors looking for relatively stable opportunities with reputable companies should consider Mainboard IPOs.

2. SME IPO

Overview

SME IPOs are issued by small and medium-sized enterprises (SMEs) looking to raise funds to grow their operations. These companies list on platforms like NSE Emerge and BSE SME.

Key Features

• Designed for smaller businesses with relaxed regulatory requirements compared to Mainboard IPOs.
• Targets niche investors willing to take higher risks.
• Requires a minimum investment amount, typically higher than Mainboard IPOs.

Who Should Invest?

Seasoned investors with an appetite for risk and a focus on emerging businesses may find SME IPOs attractive.

3. Fixed Price IPO

Overview

In a Fixed Price IPO, the company sets a fixed price for its shares. Investors know the price they must pay before applying for the IPO.

Key Features

• Simple to understand, making it suitable for novice investors.
• Investors must pay the full application amount upfront.
• The success of the IPO depends on whether the fixed price aligns with market demand.

Who Should Invest?

Investors who prefer transparency and simplicity might consider Fixed Price IPOs.

4. Book Building IPO

Overview

A Book Building IPO allows investors to bid within a specified price range. The final price, called the cut-off price, is determined based on demand during the bidding process.

Key Features

• Offers flexibility to investors in choosing their bid price.
• A better indicator of market demand compared to Fixed Price IPOs.
• Popular among institutional and retail investors alike.

Who Should Invest?

Investors who can analyze market demand and are comfortable with bidding can benefit from Book Building IPOs.

5. Follow-on Public Offer (FPO)

Overview

An FPO is not technically an IPO but a subsequent public offering by a company that is already listed on a stock exchange. It helps companies raise additional funds.

Key Features

• Typically used by companies to expand or pay off debt.
• Shares are usually offered at a discount to attract investors.
• Suitable for those looking to increase holdings in established companies.

Who Should Invest?

Existing shareholders or investors looking to expand their portfolios with listed companies should explore FPOs.

6. Rights Issue IPO

Overview

In a Rights Issue IPO, the company offers additional shares to existing shareholders at a discounted price.

Key Features

• Ensures existing shareholders have the first right to purchase.
• Shares are offered in proportion to the shareholder’s current holdings.
• Ideal for raising funds without diluting ownership significantly.

Who Should Invest?

Current shareholders who believe in the company’s long-term potential should consider participating in a Rights Issue.

7. Green Shoe Option

Overview

A Green Shoe Option is a unique IPO type that allows the underwriters to sell additional shares (up to a specified limit) if demand exceeds expectations.

Key Features

• Helps stabilize share prices post-listing.
• Common in high-demand IPOs.
• Acts as a safeguard against market volatility.

Who Should Invest?

Investors participating in high-profile IPOs where demand may outstrip supply can benefit from this structure.

8. Direct Listing

Overview

A Direct Listing bypasses the traditional IPO process, allowing companies to list their shares directly on the stock exchange without issuing new shares.

Key Features

• No new shares are issued, meaning no dilution of ownership.
• Cheaper and faster compared to traditional IPOs.
• Popular among well-funded companies that don’t need additional capital.

Who Should Invest?

Investors who trust in the company’s pre-existing valuation and growth potential might consider direct listings.