What is GMP versus Kostak Price?

GMP or grey market premium is the price an investor pays over and above the IPO offer price. GMP is a premium on per share.

Kostak price, on the other hand, is the premium a buyer is willing to pay to acquire the entire IPO application. The Kostak price is the fixed price for the entire IPO application and not for an individual share. The buyer pays the Kostak price to the seller, even if he is not allotted any shares.

Let's understand this with an example:

A company has made an initial public offering at an offer price of Rs 500 and a lot size of 30 shares. Now let us assume that the share is trading at Rs 35 in the grey market, so the GMP is Rs 5 per share.

Anyone who wants to apply for the IPO has to bid for at least 1 lot with an IPO application amount of Rs 15,000 (Rs 500*30 shares). In the grey market, if a buyer is interested in buying the entire IPO application of Rs 15,000 for Rs 4,000, here the premium for buying the IPO application is Rs 4,000, which is called Kostak price or Kostak rate.