What is IPO Price Band?
When a company launches an IPO, it doesn't set a single fixed price. Instead, it sets a price band — a range with a lower end (floor price) and an upper end (cap price).
For example: ₹180 – ₹190 per share
Investors bid at any price within this band. The company then determines the final issue price based on demand — called the cut-off price.
What is Cut-Off Price?
Cut-off price is the final price at which shares are actually allotted. It's usually the upper end of the price band for oversubscribed IPOs (since demand exceeds supply at the maximum price).
When you select "cut-off price" in your application, you're saying: "I'm willing to pay whatever the final issue price turns out to be."
Should You Always Apply at Cut-Off Price?
Yes, for retail investors. Here's why:
- If you bid below the cut-off price, your application gets rejected outright
- The difference between floor and cap is rarely more than 5% — not worth the risk of rejection
- SEBI recommends cut-off for retail applicants
Fixed Price IPO vs Book-Built IPO
Some smaller IPOs use a fixed price — there's no price band, just one price. All applicants pay the same amount and allotment is proportional.
Most major IPOs today use book building — the price band method described above.
GMP and Cut-Off Price
GMP is typically calculated relative to the upper end of the price band (the cap price), since that's almost always the final issue price for popular IPOs. When you see "GMP ₹50 on ₹200 issue price", it uses the cap price as the base.
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