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What is the book-building method?

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The book-building method is a way of IPO issuance wherein the price for the IPO gets decided at the end of the subscription window based on the book that gets built.

Under the book-building method, the issuer announces a price band (e.g. Rs 75 to Rs 80) for the issue. The lower price of the price band is known as the base price or the floor price, and the upper price of the price band is known as the Cap price or the ceiling price.

The investors place bids within this price band. The retailers have the option to bid at the Cut-off Price. The cut-off price is the final price at which the shares would get issued to the investors.

At the end of the bidding process, the lead manager assesses the demand for the issue and derives the cut-off price using the weighted average method for the bids received at different price levels.

The investors placing bids at or above the cut-off price stand a chance to get an allotment. However, the applications below the cut-off price get rejected. You may receive the shares or a refund (as applicable) based on your allotment status.


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