1. What is Kostak Rate in IPO Applications?
Kostak rate refers to the predetermined cash reward an IPO applicant receives by selling their entire application to an off-market buyer before share allotment is announced.
The biggest advantage of a Kostak transaction for the seller is zero allotment risk: you keep the agreed Kostak profit whether you are allotted 0 shares or a complete lot.
2. What is 'Subject to Sauda' (SS)?
Subject to Sauda (often abbreviated as SS) is a conditional agreement between an applicant and a buyer. Unlike Kostak, the buyer agrees to pay a substantially larger profit margin, but ONLY IF shares are actually allotted to the applicant.
If the investor receives zero allotment in the lottery, the Subject to Sauda deal becomes null and void, and no money exchanges hands.
3. Comparison: Which One Should You Choose?
In high-subscription IPOs with severe oversubscription (e.g. 80x+ in Retail), Subject to Sauda rates command a premium, whereas Kostak offers safe peace-of-mind for multi-account retail families seeking fixed application returns.