Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Pricing of Public Issues: Fixed Price and Book Building

Updated 11 October 2026 · Fact-checked

A company pricing a public issue either fixes one price in advance (fixed price method) or lets demand decide the price within a disclosed price band (book building). In book building, bids are collected, the issue price is found from the bids, and anchor investors may be allotted shares a day before the issue opens.

Understand Pricing: Fixed Price and Book Building

When a company goes public, it must decide at what price it will offer shares. There are two routes: the fixed price method and the book building method. The choice affects how much money the company raises and how fairly the price reflects demand.

In the fixed price method, the company and its lead manager decide one price before the issue opens. That price is stated in the offer document. Every investor pays the same price. Investors know the price before they apply, but the company cannot test demand first. If the price is set too high, the issue may be undersubscribed. If it is too low, the company leaves money on the table.

In book building, the company discloses a price band (a floor price and a cap price) instead of one price. Investors place bids within the band. The lead manager, called the book running lead manager, builds an order book of bids at various prices. After the issue closes, the final issue price is discovered from the demand shown in the book. This is why book building is called a price discovery process.

The cut-off price is an option for retail individual investors. They bid at the final price instead of naming a price. They agree to pay whatever the issue price turns out to be, within the band. It is not available to every category of investor.

Anchor investors are large qualified institutional buyers who are offered a portion of the issue before it opens to the public. Their early commitment gives other investors confidence and helps the lead manager gauge demand. Exact thresholds, percentages and lock-in periods come from the SEBI ICDR Regulations. The Companies Act, 2013 does not fix them, so check the current regulation text when you revise the numbers.

Key rules to remember

Fixed price issue: Issue price = single price disclosed in the offer document before opening; No price discovery. Investors know the exact price when they apply.
Book building issue: Floor price ≤ Issue price ≤ Cap price (price band); The final price is discovered from the bids after the book closes. It falls within the disclosed band.
Cut-off price bid: Bid at cut-off = willing to pay the final issue price, whatever it is within the band; Allowed only for retail individual investors under ICDR. Others must bid at a specific price in the band.
Anchor investor allocation: Anchor portion is allotted before the issue opens, at a price within the band, to qualified institutional buyers; Take the portion size, minimum bid, number of investors and lock-in from the current ICDR Regulations. Do not rely on memory of old figures.
Securities premium: Securities premium = (Issue price − Face value) × Number of shares allotted; Section 52 requires the premium received to be transferred to the securities premium account.
Weighted demand at a price (book): Cumulative demand at a price = Σ of bids at that price and at all higher prices; Used to find the highest price at which the whole issue size is covered.

How to solve Pricing: Fixed Price and Book Building questions

For any question on pricing of public issues, follow this order. It helps you cover provision, analysis and conclusion.

1Identify the method asked about: fixed price, book building, or a comparison of both.
2State the core feature of that method in one or two lines, such as a single disclosed price or a price band with price discovery.
3If numbers are given, list the bids by price and build the cumulative demand from the highest price downward.
4Find the issue price: the highest price at which cumulative demand covers the offer size. Check it lies within the band.
5Apply the category rules: cut-off bids for retail individuals only, and anchor allotment before opening.
6Calculate the securities premium as (issue price − face value) × shares, and note that it goes to the securities premium account under section 52.
7Conclude clearly with the price, the amount raised and the premium. Add one compliance point, such as disclosure in the offer document.

Quickest way: Cumulative demand table for book building

When to use it: Use when a question gives bids at different prices within a band and asks for the issue price.

Write the prices in descending order.
Add the number of shares bid at each price to the running total from the top.
Stop at the highest price where the running total is at least the issue size.
That price is the issue price. Multiply by the shares to get the amount raised.
Compute premium as (price − face value) × shares.

Common mistakes in Pricing: Fixed Price and Book Building

Saying the price in book building is fixed by the company alone.
Students mix up the price band with the final price.
Fix: Write that the company discloses a band and the final price is discovered from bids within it.
Allowing every investor to bid at cut-off price.
The term sounds general, so students assume it applies to all.
Fix: State that the cut-off option is for retail individual investors only. Other categories bid at a specific price.
Finding the issue price by adding demand from the lowest price upward.
Bids are often listed in ascending order, so students total them in that order.
Fix: A bid at a higher price also stands at lower prices. Build cumulative demand from the highest price downward.
Quoting anchor investor numbers from memory or older rules.
Thresholds under ICDR are amended from time to time and many notes copy old figures.
Fix: Describe the concept clearly and give figures only from the current ICDR text you have revised.
Computing securities premium on the full issue price.
Students forget that face value goes to share capital.
Fix: Use premium = (issue price − face value) × shares and credit it to the securities premium account as section 52 requires.
Listing differences between fixed price and book building without a conclusion.
Students memorise a table and stop there.
Fix: Close with when each suits the company: fixed price when the price is easy to justify, book building when demand is uncertain.

Worked examples

Example 1

A company offers 1,00,000 equity shares of face value ₹10 through book building with a price band of ₹100 to ₹120. Bids received: ₹120: 30,000 shares; ₹115: 25,000 shares; ₹110: 35,000 shares; ₹105: 40,000 shares; ₹100: 20,000 shares. Find the issue price, the amount raised and the securities premium. Assume the whole issue is allotted at the issue price.

Show the solution

Arrange prices from the highest and build cumulative demand.
At ₹120: 30,000.
At ₹115: 30,000 + 25,000 = 55,000.
At ₹110: 55,000 + 35,000 = 90,000.
At ₹105: 90,000 + 40,000 = 1,30,000.
At ₹100: 1,30,000 + 20,000 = 1,50,000.
The offer size is 1,00,000 shares. At ₹110 demand is 90,000, which is less than 1,00,000. At ₹105 demand is 1,30,000, which covers the issue.
The highest price at which the whole issue is covered is ₹105. It lies within the band of ₹100 to ₹120.
Amount raised = 1,00,000 × ₹105 = ₹1,05,00,000.
Securities premium = (₹105 − ₹10) × 1,00,000 = ₹95 × 1,00,000 = ₹95,00,000.

Answer: Issue price ₹105; amount raised ₹1,05,00,000; securities premium ₹95,00,000, transferred to the securities premium account under section 52.

Example 2

Explain how a fixed price issue differs from a book building issue. Also state who may bid at the cut-off price, and what role anchor investors play.

Show the solution

Provision: in a fixed price issue the company discloses one price in the offer document before opening. In book building it discloses a price band, and the final price is discovered from bids.
Analysis of pricing: in fixed price, the price is set without testing demand, so there is a risk of mispricing. In book building, demand shapes the price, so it reflects market appetite.
Analysis of investor position: in fixed price, investors know the exact amount payable at the time of application. In book building, bids are within the band and the final price is known only after the book closes.
Cut-off price: retail individual investors may bid at the cut-off price, which means they accept the final issue price. Other investors must name a specific price in the band.
Anchor investors: they are large qualified institutional buyers allotted a portion before the issue opens. Their commitment signals confidence and helps assess demand. Portion size, minimum bid and lock-in are as set out in the SEBI ICDR Regulations.
Conclusion: fixed price suits a company whose value is easy to justify. Book building suits a company where demand is uncertain and price discovery adds value.

Answer: Fixed price uses one pre-disclosed price. Book building uses a price band with price discovery. Only retail individual investors may use the cut-off option. Anchor investors are institutions allotted shares before opening to build confidence and indicate demand.

Exam tips

Use the provision, analysis, conclusion pattern. Define the method first, then apply it to the facts, then conclude.
In numerical questions, always show the cumulative demand table. Marks are given for the working.
When asked for anchor investor rules, state the concept and refer to the ICDR Regulations. Give figures only if you are sure they are current.
Write the securities premium step and cite section 52 whenever shares are issued above face value.
For comparison questions, use short paired points on price, risk, investor knowledge and demand, then add a one-line conclusion.

Practice questions from Raising of Funds from Equity and Procedural Aspects - Public Funding

Pricing: Fixed Price and Book Building in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

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Pricing: Fixed Price and Book Building: frequently asked questions

What is the difference between a fixed price issue and a book building issue?

In a fixed price issue, one price is set and disclosed before the issue opens. In book building, a price band is disclosed and the final price is discovered from investor bids. Book building therefore reflects actual demand.

What is a price band in an IPO?

A price band is the range between a floor price and a cap price within which investors may bid in a book built issue. The final issue price is decided within this range after the book closes.

What is the cut-off price in an IPO?

It is the final issue price discovered through book building. A retail individual investor who bids at the cut-off price agrees to pay whatever that final price is, within the band. Other categories cannot use this option.

Who are anchor investors?

Anchor investors are qualified institutional buyers who are allotted part of the issue a day before it opens to the public. Their early commitment builds confidence. The portion, minimum bid and lock-in are set by the SEBI ICDR Regulations, so check the current text.

Where does the premium on a public issue go?

Section 52 of the Companies Act, 2013 requires an amount equal to the premium received to be transferred to the securities premium account. The account can be used only for the purposes listed in that section.