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Open two IPO pages on the same day and you will often see two very different things. One shows a price band — say ₹475 to ₹500 a share — and asks you to bid. The other shows a single, flat number printed in the document. That difference is not a design choice; it is the whole pricing method. Understanding book building vs fixed price IPO is the fastest way to stop guessing what the "band", the "cut-off" and the "basis of allotment" actually mean for the money you put in. This guide explains how each method sets the issue price, what SEBI's rules allow, and which one is built to protect you as a retail applicant.
Two ways an IPO decides its price
When a company sells shares to the public for the first time, someone has to decide the price. India's securities regulator, SEBI, allows exactly two routes for a main-board issue: the book-building method and the fixed-price method.
In a fixed-price issue, the company and its merchant banker set one price in advance and print it in the offer document. You know the exact figure before you apply. Demand is a mystery until the issue closes.
In a book-built issue, the company does not name a single price. It offers a range — the price band — and lets investors bid inside it. The final price is then discovered from the demand that comes in. Almost every large IPO you hear about today is book-built, because it lets a company read live appetite rather than guess.
Both routes raise the same money for the same shares. What changes is when the price is known, who sets it, and how the shares are then shared out. Get those three ideas straight and the rest of the IPO vocabulary falls into place. If you want this foundation built properly rather than pieced together from scattered videos, a structured stock market course compresses the learning into weeks.
How book building discovers the price
Book building is a demand-driven auction wrapped in a few SEBI rules. Instead of declaring a price, the company publishes a band and invites qualified institutional buyers, high-net-worth investors and retail applicants to bid for shares at prices within it.
The price band and the 20% rule
The band has a floor (the lowest price) and a cap (the highest). SEBI does not let a company stretch the band as wide as it likes. The spread between floor and cap must be at least 5% and no more than 20% — in plain terms, the cap can be at most 1.2 times the floor. So a floor of ₹100 can carry a cap no higher than ₹120.
This cap matters. A narrow band signals confidence and keeps the discovered price predictable; a band pushed to the full 20% leaves more room for the final price to land at the top.
The price band is capped at 20%, and the final price is discovered inside it
Illustrative band. Rule source: SEBI ICDR Regulations.
Bidding and the cut-off price
A book-built issue stays open for bidding for three working days. If the company revises the band during that window, bidding is extended by a further three days, but the total can never exceed ten working days.
During those days, investors place bids at any price inside the band. Once bidding closes, the registrar studies the demand at each level and arrives at the cut-off price — the final price at which the issue is sold. Retail investors get a shortcut here: you can simply bid "at cut-off", which means you agree to accept whatever final price is discovered. That way you are never left out just because the price settled at the cap. We explained how the band is displayed and read in our guide to what an IPO price band is and how it works.
The demand pattern itself tells a story. When applications cluster at the cap and the issue is many times oversubscribed, the final price is almost certain to be set at the top of the band. When bids bunch near the floor, the company may price lower to still get the issue through. This is why you often see headlines tracking how the QIB and retail portions are filling up day by day — those numbers are a live read on where the cut-off is heading.
This live price discovery is the core advantage of book building: the market, not a committee, settles the number.
How a fixed-price issue sets the price
A fixed-price issue takes the opposite approach. The company and its merchant banker study the business, its peers and market conditions, and then commit to one price per share, which is printed in the prospectus before the issue opens.
When you apply, there is no band and no bidding. You are told the price, you decide yes or no, and you pay for the number of shares you want at that price. There is no "cut-off" to wait for, because the number was never in question.
The trade-off is visibility. In a fixed-price issue, demand is revealed only after the issue closes — you cannot watch subscription build at different price levels the way you can in a book-built deal. If the company prices too high, the issue can stay under-subscribed; too low, and it leaves money on the table. That is why larger companies, which can afford the extra process, lean on book building, while fixed pricing historically suited smaller, simpler issues.
There is also a timing difference that trips up first-time applicants. In a fixed-price issue you commit at a known number, so your only decision is whether that price is fair. In a book-built issue you are bidding before the price exists, which is exactly why the cut-off option was created — it lets ordinary investors take part without having to forecast the final figure.
One practical note that applies to both routes today: you apply through ASBA (Application Supported by Blocked Amount), usually via UPI. Your application money is only blocked in your bank account, not debited, until shares are actually allotted. If you get no allotment, the block is released, so there is no cost to applying beyond the funds held aside for a few days.
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Set the two methods against each other and the differences are clean. The table below is the summary worth remembering before your next application.
| What to compare | Book building | Fixed price |
|---|---|---|
| How the price is set | Discovered from demand within a band | Decided in advance, printed in the prospectus |
| What you see | A price band (floor to cap) | A single fixed price |
| When you know demand | Live, during the bidding days | Only after the issue closes |
| How you apply | Bid at a price, or at cut-off | Apply at the stated price |
| Retail reservation | At least 35% (standard route) | At least 50% |
| Typical use | Most large main-board IPOs | Smaller or simpler issues |
The headline difference is timing and control: book building lets the market set the price and hands institutions a bigger seat at the table, while fixed pricing removes the guesswork for you but reserves more of the issue for retail.
Who gets the shares: allotment quotas
Pricing decides the number; allotment decides who actually receives the shares. SEBI fixes minimum reservations for each investor category, and they differ sharply by method and by company type.
There are three common splits. A book-built issue by a profitable company (the standard route) reserves at least 35% for retail, at least 15% for non-institutional investors (HNIs) and up to 50% for qualified institutional buyers. A company that does not meet the profitability test must use the QIB-heavy route: at least 75% to QIBs, and no more than 15% to HNIs and 10% to retail. A fixed-price issue is the most retail-friendly — at least 50% is reserved for retail, with the rest for everyone else.
Fixed price reserves half for retail; book building gives institutions the larger share
Source: SEBI ICDR Regulations (reservation categories).
A few nuances are worth carrying into your next application:
- Retail is best protected in fixed-price and standard book-built issues — the QIB-heavy route leaves retail just 10%.
- Over-subscription changes your odds, not your quota. If the retail portion is 20 times subscribed, allotment moves to a lottery for the minimum lot. We covered this in detail in our note on IPO subscription categories — QIB, NII and retail.
- Anchor investors sit inside the QIB slice. In book-built issues, a part of the QIB portion can be allotted to anchor investors who commit a working day before the issue opens.
What this means for you as a retail applicant
You rarely get to choose the method — the company does. What you can do is read it correctly. When you see a band, you are in a book-built issue: bid at cut-off unless you have a strong view on price, and remember institutions can take up to half or more of the shares. When you see a single printed price, you are in a fixed-price issue with at least half reserved for retail, so your real question is simply whether the business and its valuation convince you.
Either way, the price is only the entry point. The habits that matter — reading the offer document, checking how the money will be used, and sizing your application to your own portfolio — are the same. For the full journey from filing to listing, see our walkthrough of the IPO process in India, from DRHP to listing day.
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Start a stock market training courseFrequently Asked Questions
What is the main difference between book building and fixed price IPO?
In a book-building IPO the company offers a price band and the final issue price is discovered from investor demand during the bidding days. In a fixed-price IPO the price is decided in advance and printed in the prospectus, so you know the exact figure before you apply. Book building reveals demand live; fixed price reveals it only after the issue closes.
What is the cut-off price in a book-built IPO?
The cut-off price is the final issue price discovered after bidding closes, based on the demand received at different levels within the band. Retail investors can bid "at cut-off", meaning they agree to accept whatever final price is set. This ensures a retail applicant is not excluded if the price settles near the top of the band.
How wide can an IPO price band be?
Under SEBI's rules, the spread between the floor and the cap of a price band must be at least 5% and no more than 20%. In other words, the cap can be at most 1.2 times the floor. So if the floor is ₹100, the cap cannot exceed ₹120. A revision to the band can extend the bidding period, up to a total of ten working days.
Which method reserves more shares for retail investors?
A fixed-price issue is the most retail-friendly, reserving at least 50% for retail individual investors. A standard book-built issue reserves at least 35% for retail and up to 50% for qualified institutional buyers. A book-built issue using the no-profit (QIB) route reserves at least 75% for QIBs and only 10% for retail.
Why do most large IPOs use book building?
Large companies prefer book building because it lets the market set the price through live demand rather than a fixed guess. This reduces the risk of pricing too high or too low, brings in institutional and anchor investors, and signals real appetite. Fixed pricing is simpler and historically suited smaller issues where detailed price discovery was less critical.
Can a company change the IPO price band after it opens?
Yes. A company can revise the price band during the bidding period, and SEBI allows the bidding window to be extended by a further three working days when this happens — provided the total bidding period does not cross ten working days. A revision is relatively uncommon and is disclosed publicly, so applicants get a fresh chance to review their bid at the new band before deciding.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Markets carry risk — please do your own research or consult a qualified financial professional before investing. NIFM provides training and exam preparation; certification exams conducted by regulatory or professional bodies are administered by those bodies independently.
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