Reviewed on 24 Oct 2026 · Source: IPO Bulletin explainer; checked against SEBI ICDR Regulations 2018 (as amended) and Companies Act 2013
The Red Herring Prospectus, or RHP, is the offer document filed with the Registrar of Companies before an IPO opens. It is based on the earlier draft, the DRHP, updated for SEBI’s observations and for the latest financial results. The RHP contains almost everything an investor needs: business description, risk factors, financials, promoter details, litigation, capital structure, the objects of the issue and the price band. What it does not contain is the final issue price and the exact size of the issue at that price, which are decided after book building and appear in the final prospectus. The name comes from the red-coloured disclaimer on its cover noting that the document is not yet final. Companies usually file the RHP a few days before the opening of the issue, and it is available on the websites of the exchanges, SEBI, the registrar and the lead managers. For a serious investor the RHP is the single most important document to read before applying, particularly the risk factors, the related-party transactions, the use of proceeds, and the comparison with listed peers. IPO Bulletin links to the RHP on each IPO page where available.
Example: Before the issue opens on Wednesday, a company files its RHP with the price band of Rs 300 to Rs 315. The final price of Rs 310 is added to the prospectus only after the book closes.
Book building is the process of discovering an IPO's price by collecting bids from investors within a price band. The company and its lead managers announce a floor and a cap price and open the issue for a few days. During that time investors submit bids stating how many shares they want and the price they are willing to pay. The registrar and the exchanges collect these bids in an electronic book. When the issue closes, the demand at each price level is totalled and the lead managers, with the company, decide the highest price at which the whole issue is subscribed, called the clearing price. Everyone who is allotted shares pays this one price, even if they bid higher. Most IPOs in India use book building because it lets the market, not just the issuer, determine the price, and because it is hard for the issuer to underprice or overprice without seeing demand. In a book-built issue at least 75 percent of the net offer is generally allotted to qualified institutional buyers and non-institutional investors together with retail, in the proportions the rules fix.
A prospectus is the legal document in which a company invites the public to subscribe to its shares or debentures and discloses the information investors need to decide. In India the Companies Act 2013 and SEBI regulations require it to contain complete and accurate details about the business, promoters, directors, financial statements, risks, legal cases, capital structure and the purpose for which funds are being raised. There are stages in the document trail of an IPO: the Draft Red Herring Prospectus filed with SEBI, the Red Herring Prospectus filed before the issue opens, and the final Prospectus filed with the Registrar of Companies after the price and size have been fixed. The final prospectus is the binding document that records the issue price, the amount raised and the allotment details. Because investors rely on it, the company, its directors and the lead managers carry legal liability for any misstatement, and investors can seek remedies for material misrepresentation. For ordinary investors a long prospectus can be daunting, so start with the summary of the issue, the risk factors, the objects of the issue and the financial tables, and then read the rest as needed.
A price band is the range, with a lower limit (floor) and an upper limit (cap), within which investors may bid for shares in a book-built IPO. The company and its lead managers announce the band in the price band advertisement, usually a few working days before the issue opens, and the Red Herring Prospectus carries the same range. The final issue price is discovered through bidding and is fixed inside this range, so it can never be higher than the cap or lower than the floor. Under SEBI rules the cap should not exceed 120 percent of the floor price, which keeps the range reasonably tight. Retail investors normally bid at the cap or at the cut-off price so that their bid stays valid whatever the final price turns out to be. The band matters because it sets the maximum money you must keep blocked in your bank account: lot size multiplied by the cap price. Companies can revise the band during the issue, but that requires public notice and an extension of the bidding period by at least three working days. Fixed-price issues do not have a band; they have a single price.
Worked example
Before the issue opens on Wednesday, a company files its RHP with the price band of Rs 300 to Rs 315. The final price of Rs 310 is added to the prospectus only after the book closes.
