An investor may realize an Initial Public Offering (IPO) & its valuation, but wouldn’t exactly realize what makes up the whole and sole of the same . A cut-off price is one of the important aspects with reference to an IPO.
The cut-off price is the selling price at which the shares get issued to the investors, which could be any price within the price band.
An IPO book building issue opens with a price range. There is a minimum price and a maximum price for the matter . An investor can place bids for the required quantity in multiples of the lot size within the applicable range.
What is a cut-off price in an IPO?
To simplify what might read kind of a sophisticated term for a newbie within the sector of stock market investment, a cut-off price could also be a price at which shares get issued to the investors.
An IPO book building issue opens with a price range and there are both, minimum price and a maximum price for the problem . An investor can place bids for the required quantity in multiples of the lot size with a price within the applicable range.
Two Kinds of IPO Pricing
In India, there are two kinds of mechanisms in regard to IPO pricing. allow us to interrupt it down for you to understand the cut-off price better.
In a Fixed Price Issue, the price of the offerings are evaluated by the company in conjunction with their underwriters.
Fixed Price Issue- In a Fixed Price Issue, the price of the offerings are evaluated by the company in conjunction with their underwriters. They evaluate the company’s assets, liabilities, and each financial aspect. They then work on these figures and fix a price for his or her offerings. The price is fixed after considering all the qualitative and quantitative factors. during a hard and fast price issue, the fixed price could even be undervalued during the company’s IPO. the price is typically but the market value . As a result, investors are always very inquisitive about fixed price issues and ultimately revalue the corporation positively.
Book Building Issue- A book building issue could also be a relatively new concept in India compared to other parts of the earth . During a book building issue, there’s no fixed price, but a price band or range. The lowest and thus the very best price is known as ‘floor price’ and ‘cap price’ respectively. you’ll bid for the shares with the required price you’d wish to pay. Thereafter the worth of the stock is fixed after evaluating the bids. The demand of the share is known after a day because the book is formed.
An IPO is often done through Fixed Price Issue or Book Building Issue or a mix of both.
In a book building issue, there is no fixed price, but a price band.
In a fixed price issue, you’d wish to pay 100% of the price of the share at the time of bidding for the share, but just in case of book building issues, the payments are often completed after the allocation.