What is the cut-off price for an IPO?
It is the price at which shares are issued to IPO applicants within the given price range/band.
While making an IPO application, an investor will be able to quote their bid price:
- At any price within the given price band, and/or
- Select the option of applying at the cut-off price (which will be determined after the closure of the application window).
Selecting the cut-off price option implies that you are willing to subscribe to the IPO at the final price determined by the issuer.
For example:
The price band for an IPO is Rs. 50 - 80. You decide to place a bid for 100 shares at Rs. 60 each. This can result in 3 scenarios:
A. The cut-off price is finalised at Rs. 65- You will not receive allotment since your bid was placed at Rs. 60.
B. The cut-off price is finalised at Rs. 55- You will be allotted shares at Rs. 55 each, since your bid was placed at Rs. 60.
C. If you had ticked the cut-off price provision in the application, you will be eligible for allotment at the final issue price (Rs. 65 in scenario A and Rs. 55 in scenario B).
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