The main difference is that a fixed price issue offers shares at a specific, pre-determined price, while book building involves a price discovery process, where investors bid within a price range, determining the final issue price based on demand and supply dynamics.
Content Id:
- What Is Fixed Price Issue?
- Book Building Meaning
- Difference Between Fixed Price Issue & Book Building
- Difference Between Fixed Price Issue & Book Building – Quick Summary
- Fixed Price Issue Vs Book Building – Faqs
What Is Fixed Price Issue?
A fixed price issue is a method of issuing shares where the company sets a specific, predetermined price for the securities. Investors know the share price before investing, making the decision straightforward, but it lacks the flexibility to adjust to market demand.
In a fixed price issue, the company going public determines the share price beforehand. This price is publicly announced, giving potential investors clear information about the cost per share during the initial offering.
This method simplifies investment decisions but lacks market-driven price discovery. The fixed price may not reflect current market conditions, potentially leading to under-subscription if priced too high, or undervalued shares if priced too low, compared to market dynamics.
For Example: Imagine a company decides to go public with a fixed price issue at Rs. 100 per share. Investors can buy the shares at this exact price during the initial offering, with no bidding involved.
Book Building Meaning
Book building is a process used in IPOs where the issue price of shares isn’t set in advance. Instead, a price range is offered, and investors place bids. The final price is determined based on these bids, reflecting the market’s demand for the shares.
In book building, a company offers a price range for its shares during an IPO. Investors submit bids within this range, indicating how many shares they’re willing to buy and at what price.
The final issue price is set after analyzing these bids, based on investor demand. This method helps in better price discovery, potentially aligning the share value more closely with market expectations and investor interest, compared to fixed price issues.
For Example: Suppose a company’s IPO uses book building with a price range of Rs. 150 to Rs. 180 per share. Investors place bids within this range, and the final price, say Rs. 170, is determined based on these bids.
Difference Between Fixed Price Issue & Book Building
The main difference is that Fixed price issues have a pre-set share price, whereas book building involves a range, allowing investors to bid. The final price in book building is set based on demand, offering market-driven pricing flexibility.
| Feature | Fixed Price Issue | Book Building |
| Pricing | Pre-determined, specific price for shares. | Price range offered; final price based on bids. |
| Investor Participation | Investors buy at the set price. | Investors bid within a price range. |
| Price Discovery | Price is set by the issuer, not market-driven. | Market-driven, based on investor demand. |
| Flexibility | Less flexible, as price doesn’t reflect market demand. | More flexible, adapts to market conditions. |
| Risk | Risk of mispricing due to lack of market input. | Reduced risk of mispricing due to market feedback. |
| Suitability | Suitable for smaller, less-known companies. | Preferred by larger, well-known companies. |
Difference Between Fixed Price Issue & Book Building – Quick Summary
- In a fixed price issue, a company issues shares at a predetermined price, providing clarity for investors. This approach simplifies the investment decision process but lacks the flexibility to adapt the pricing to real-time market demand.
- Book building in IPOs involves offering a price range instead of a set price. Investors place bids within this range, and the final share price is determined based on these bids, reflecting market demand.
- The main difference between fixed price issues and book building is in pricing; fixed price issues have a set price, while book building uses a range, with the final price based on investor demand, providing pricing adaptability.
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Fixed Price Issue Vs Book Building – Faqs
What Is The Difference Between Fixed Price Issue & Book Building?
The main difference is that a fixed price issue sets a specific price for shares, while book building involves a price range where investors bid, determining the final price based on market demand and supply.
What Is The Book Building Process?
The book-building process is an IPO method where a price range is set for shares, and investors place bids within this range. The final issue price is then determined based on these bids.
What is The Difference Between Book Building And Reverse Book Building?
The main difference is that book building determines the issue price of shares during an IPO through investor bids, while reverse book building is used in buybacks, where shareholders propose prices at which they’re willing to sell shares.
What are the benefits of book-building?
The main benefits of book building include efficient price discovery through market demand, potentially higher investor interest due to participatory pricing, and better market reception, as the price reflects current investor sentiment and market conditions.
What Are the Advantages Of Fixed Pricing?
The main advantages of fixed pricing include simplicity and certainty in the investment process, as the price is set in advance, making it easier for investors to evaluate and decide on their investment.
