Types of IPOs
Not all IPOs are the same. Understanding the different types helps you evaluate opportunities and set expectations.
The type of IPO affects who benefits most – the company, existing shareholders, or both. Always check the issue structure.
By Issue Type
Fresh Issue
The company creates new shares:
- Money raised goes to the company
- Used for business expansion, debt repayment, working capital
- Existing shareholding gets diluted
- Generally viewed positively
Offer for Sale (OFS)
Existing shareholders sell their shares:
- Money goes to selling shareholders (promoters, PE investors)
- No new money for the company
- Company doesn't benefit directly
- Can signal cashing out
Mixed Issue
Most IPOs combine both:
- Fresh issue portion for company
- OFS portion for existing investors
- Check the ratio in the prospectus
Heavy OFS with minimal fresh issue might mean investors are exiting while they can. Look at why they're selling.
By Listing Platform
Main Board IPO
Standard exchange listing:
- Larger companies
- Minimum ₹10 crore post-issue capital
- Stricter requirements
- Higher visibility
SME IPO
For smaller companies:
- Listed on NSE Emerge or BSE SME
- Minimum lot size is higher (₹1-2 lakh)
- Less stringent requirements
- Higher risk
SME IPOs can be very volatile. Many have limited liquidity and can be manipulated. Exercise caution.
By Purpose
Growth IPO
Company is expanding:
- Funds for new plants, products, markets
- Usually younger, fast-growing companies
- Higher risk, higher potential
Debt Reduction IPO
Paying down loans:
- Company may be overleveraged
- Check why debt was taken
- Could be positive (deleveraging) or concerning (can't service debt)
Exit IPO
Investors want liquidity:
- PE funds or promoters exiting
- May not have growth left
- Check exit timing (good price vs forced exit)
Special Categories
Government IPOs (OFS/Disinvestment)
Government selling stake in PSUs:
- Usually established companies
- May include retail discount
- Often less volatile listings
- Examples: LIC, IRCTC
REIT/InvIT IPOs
Real Estate / Infrastructure Investment Trusts:
- Pool of income-generating assets
- Regular dividend payout
- Different valuation metrics
- More like income instruments
REIT/InvIT IPOs are valued by cash flow yield, not P/E. Different analysis approach required.
By Pricing Method
Fixed Price Issue
Price is pre-determined:
- No price discovery
- Less common now
- Simpler for investors
Book Building
Price discovered through bidding:
- Price band given (e.g., ₹100-₹110)
- Investors bid at desired price
- Final price set based on demand
- Most common method today
Choosing What to Invest In
| IPO Type | Best For |
|---|---|
| Growth fresh issue | Long-term investors seeking growth |
| OFS by PSU | Stability seekers, dividend investors |
| SME IPO | High-risk tolerance, experienced investors |
| REIT/InvIT | Income-focused investors |
Key Takeaways
- Fresh issue raises money for company; OFS benefits existing shareholders
- Main board IPOs are safer than SME IPOs
- Check whether funds are for growth or debt repayment
- Government IPOs are usually more stable
- Book building is standard; fixed price is rare
Next: Who are the key players that make an IPO happen?
Sources & Disclaimer
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- SEBI Guidelines for Red Herring Prospectus (RHP) Format
Note: Any benchmarks (e.g., "Good ROE is > 20%", or specific P/E ranges) are simplified industry heuristics for educational purposes. True evaluation depends on specific industry context, market cycles, and individual company circumstances.