What is Cut-Off Price in IPO?
5paisa Research Team
Last Updated: 20 Aug, 2024 04:14 PM IST

Content
- Cut-Off Price Meaning In An IPO
- Selecting Cut-off Price While Applying
- Improving The Chances of Getting An Allotment
- Final Verdict
Cut-off price is the offer price at which shares get allotted to investors. It plays an important role in price discovery, helping underwriters gauge the demand for the offering and the right price from within the predetermined range.
This is usually involved in a book building issue instead of a fixed price mechanism. The company announces the price band or the floor price in its prospectus, and the actual discovered price is within the price range, or any figure above the floor price, called the 'Cut-off' price.
For example, if a company's IPO is priced between INR 100 and INR 105, and you bid INR 103 for ten shares, but the price is determined to be INR 102, you will receive allotment at INR 102 per share, whereas, if the price is determined at INR 104, you will fail to receive any allotment.
By selecting the cut off option, you stand to gain allotment no matter what the final price of the IPO is, so long as it doesn't extend beyond the established price range.
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