In this current IPO market, it is very much necessary that we should know what are the different types of issues in IPO through which a company raises money.
- Offer for Sale: This part of the issue is said when existing investors of the company are selling their stake in the company. The money raised through this type of issue will not go to the company.
- Fresh Issue: This type of issue is said when promoters are further diluting share in the company. The money raised through this issue will directly go to company for its business.
Any investor can know about the objectives of IPO through its red herring prospectus. Generally, most of the companies issue hybrid kind of issue in IPO (offer for sale + fresh issue).
IPOs are offered on 2 types of the platform:
- Mainstream IPO: The main criteria for this type of IPO is that the issue size should be greater than 25 crores and is generally above 150 crores. Retail participation is encouraged therefore IPO minimum bid price is around Rs 15,000.
- SME IPO: In this IPO the issue should be less than 25 crores. Retail participation is not encouraged and all investors are encouraged to invest after an in-depth analysis of the company. Therefore, IPO minimum bid price is greater than Rs 80,000.
Investing in SME IPO is generally riskier than in the mainstream and an investor should be cautious about the risk involved in the investment. Fresh Issue, often gives more advantage to the company as the funds collected directly goes to the company. Fresh Issue also promotes the confidence among investors but it also depends on a lot of other factors.