IPO Cut Off Price Meaning: How Retail Bids at Cut-Off Work in Book-Built Issues

The IPO cut off price is the final issue price that a company and its lead managers settle on once bidding closes in a book-built IPO. Tick the “cut-off” box on your application and you’re telling the issuer you’ll take shares at whatever final price gets discovered inside the price band, rather than naming a price of your own. For most retail investors in India that’s the easiest and safest way to bid. It does come with rules, though: who is allowed to use it, how much money gets blocked, and what happens if the band moves.

Below we explain what the cut-off price means, how it gets set, who can bid at cut-off and how the blocked money in your bank account works, with a worked example along the way. If primary markets are new to you, our pillar guide on IPO investing in India walks through the whole journey from DRHP to listing.

In this article

1. What is the IPO cut off price?
2. How the price band and cut-off price are set
3. Who can bid at the cut-off price?
4. Why retail investors usually choose cut-off
5. How much money is blocked when you bid at cut-off
6. A cut-off bid from application to allotment
7. Cut-off bids and allotment in an oversubscribed IPO
8. What happens if the price band is revised
9. Revising or withdrawing a cut-off bid
10. Common mistakes with the cut-off option
11. Cut-off price vs other IPO price terms
12. Frequently asked questions
13. The short version for retail bidders

What is the IPO cut off price?

In a book-built issue the company doesn’t announce a single fixed price. It announces a price band, a range with a lower end (the floor price) and an upper end (the cap price), and investors bid at prices inside it. The SEBI FAQs on the ICDR Regulations explain that once bidding is complete, the “cut-off” price is arrived at based on demand for the securities. After that the basis of allotment is finalised, allotments and refunds are processed, and the final prospectus with the final issue price is filed with the Registrar of Companies.

People use the term in two closely related ways, and that trips a lot of investors up:

• Cut-off as a number. It’s the final offer price fixed at the end of book building. Allotment and listing are both measured against it.
• Cut-off as a bid option. On the application form, or your broker’s IPO screen, “cut-off” is a checkbox. Ticking it means you agree to pay the final offer price, wherever in the band it ends up.

Investopedia describes book building as the way underwriters gauge market interest and set the price of new securities by recording investor demand. In India the process falls under SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, and the practical rules you see on the form are spelt out in the General Information Document (GID) that goes with public issues.

How the price band and cut-off price are set

The cut-off can only fall inside the announced band, so the band rules come first.

Price band limits

The General Information Document for investing in public issues says the cap of the price band should be less than or equal to 120% of the floor price, provided the cap is at least 105% of the floor. The SEBI FAQs say the same thing differently: the spread between floor and cap can’t be less than 5% or more than 20%.

So with a floor price of ₹380, the cap has to land somewhere between ₹399 (105% of ₹380) and ₹456 (120% of ₹380).

When the band is announced

According to the SEBI FAQs, the issuer has to announce the floor price or price band at least two working days before an IPO opens, and at least one working day before a further public offer (FPO) opens, in all the newspapers that ran the pre-issue advertisement. The band can be revised while the issue is open. If it is, bidding gets extended by three days, as long as the total bidding period doesn’t go beyond ten working days.

How long bidding lasts

The same FAQs say book-built public issues stay open for 3 to 7 working days, which can be stretched by 3 days if the price band is revised.

How the final price is discovered

Investors put in a price and a quantity. When bidding closes, the book running lead managers sit down with the issuer, look at how much demand came in at each price level, and arrive at the issue price. That price is the cut-off. The GID notes that the offer price is finalised after the bid/offer closing date, and that valid bids at or above the offer price are the ones considered for allocation.

A price bid below the final offer price simply drops out of the allotment, while a cut-off bid always stays in the race.

Who can bid at the cut-off price?

Not everyone gets the cut-off option. The GID spells out who can and can’t use it:

• Allowed: Retail Individual Investors (RIIs), employees bidding in the employee reservation portion, and Retail Individual Shareholders bidding in a shareholder reservation portion, if the issue has one.
• Not allowed: Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs). The GID says bidding at cut-off is prohibited for QIBs and NIIs, and such bids are liable to be rejected.

The SEBI FAQs define a retail individual investor as someone who applies for securities worth not more than ₹2,00,000. Go above that and you’re in the non-institutional category, usually called HNI, where you have to name a specific price. Our guide on how to apply for an IPO in the HNI category covers that route.

There’s a practical trap to watch for. The GID warns that if a retail bid crosses ₹2,00,000 because of a revision or for any other reason, it may be treated as a non-institutional bid, won’t qualify for any retail discount, and may be rejected if it was placed at cut-off. Keeping your total inside the retail limit is what keeps the cut-off option valid.

For employees, the GID caps the bid amount in the employee reservation portion at ₹5,00,000, though the initial allotment to an eligible employee can’t exceed ₹2,00,000. Anything above that is allotted only if the employee portion is undersubscribed after the first round of allotment.

Why retail investors usually choose cut-off

The big plus is that your bid can’t fail on price. The SEBI FAQs explain that price bids can turn invalid if the price you named is lower than the price discovered, whereas cut-off bids always stay valid for allotment.

Think about the alternative. You bid at the floor, demand is strong, and the final price lands at the cap. Your bid now sits below the offer price and simply isn’t considered. The higher the final price goes within the band, the more price bids underneath it fall away.

Cut-off also takes the guesswork out. You don’t have to predict where institutional demand will settle. You accept the price the book discovers, which is the same price every allotted investor in your category pays, before any discount the issuer may give retail or employee bidders.

How much money is blocked when you bid at cut-off

IPO payments in India run through ASBA (Application Supported by Blocked Amount). Your money stays in your bank account but is blocked until allotment. Our explainer on the ASBA IPO application process goes through UPI mandates and blocking one step at a time.

On cut-off bids, the GID is clear: for RIIs bidding at cut-off, the amount is blocked at the cap price. So your bank holds enough to pay the highest possible price in the band, minus any discount the issue offers. Once the final price is fixed and allotment is done, what you actually owe is debited and the rest is released.

Minimum lot and maximum bid

The GID says the issuer and the book running lead manager fix the minimum number of shares per bid so that the minimum application value falls between ₹10,000 and ₹15,000. That minimum is the bid lot, and you can only apply in multiples of it. Retail bids have to be sized so the bid amount stays at or under ₹2,00,000. And because cut-off money is blocked at the cap, it’s the cap price that decides how many lots fit inside ₹2,00,000.

A cut-off bid from application to allotment

The numbers here are hypothetical and only for illustration. This isn’t a real IPO.

Say a company opens an IPO with a price band of ₹380 to ₹400 and a lot size of 37 shares. Check the band first. The cap of ₹400 is 105.3% of the floor, which is inside the 105% to 120% range. One lot costs 37 × ₹400 = ₹14,800 at the cap and 37 × ₹380 = ₹14,060 at the floor, so the minimum application sits within the ₹10,000 to ₹15,000 range.

Step 1: Work out the maximum retail bid

Divide the retail limit by the cost of one lot at the cap: ₹2,00,000 ÷ ₹14,800 = 13.5. Only whole lots count, so the most you can bid is 13 lots, or 13 × 37 = 481 shares. At the cap, 481 × ₹400 = ₹1,92,400, which fits under ₹2,00,000. A 14th lot would take you to 518 shares and ₹2,07,200, which pushes the bid out of the retail category.

Step 2: Bid at cut-off and see the block

You apply for 13 lots and tick cut-off. Your bank blocks ₹1,92,400, the cap-price value of 481 shares.

Step 3: The final price is fixed

Let’s say demand settles the offer price at ₹390. Your cut-off bid is automatically treated as a bid at ₹390.

• If you get all 481 shares: you pay 481 × ₹390 = ₹1,87,590, and the balance of ₹1,92,400 − ₹1,87,590 = ₹4,810 is released.
• If you get one lot of 37 shares: you pay 37 × ₹390 = ₹14,430, and the remaining ₹1,77,970 is released.
• If you get nothing: the full ₹1,92,400 is released.

Step 4: Compare with a price bid

Now take a second investor who bid 13 lots at a fixed ₹385 instead of cut-off. Since ₹385 is below the final price of ₹390, that bid isn’t considered for allotment at all, because only valid bids at or above the offer price get allocated. The cut-off bidder is still in the running. The price bidder is out.

Cut-off does not raise your chance of allotment in an oversubscribed issue; it only makes sure your application is counted.

Cut-off bids and allotment in an oversubscribed IPO

Bidding at cut-off keeps your application valid, but it doesn’t promise you shares. The GID says each RII’s allotment shall not be less than the minimum bid lot, subject to shares being available in the retail category, with any leftover shares allotted proportionately. When the retail book is heavily oversubscribed there simply aren’t enough shares to give every valid applicant a lot, so plenty of perfectly valid cut-off bids still come away empty. After the issue closes, our guide on how to check IPO allotment on NSE and BSE shows you where to look.

How much of the issue goes to retail depends on which route the company qualifies under. The SEBI FAQs say that for an issue through the profitability route, not less than 35% of the net offer is set aside for retail individual investors, not less than 15% for non-institutional investors and not more than 50% for QIBs. For compulsorily book-built issues, at least 75% of the net offer goes to QIBs, not more than 15% to NIIs and not more than 10% to retail investors. Each issue’s RHP tells you which route applies.

What happens if the price band is revised

Bands can move during the issue period, and cut-off bidders are covered either way:

• Downward revision: the GID says RIIs, employees and retail individual shareholders who bid at cut-off can either revise their bid or have the excess blocked amount released.
• Upward revision: if a retail investor neither revises the bid nor pays more, and the offer price ends up above the cap of the original band, the GID says the number of shares is adjusted downward so no extra payment is needed, and the investor is deemed to have approved the revised bid at cut-off.

In the second case you stay in the issue with fewer shares instead of having your bid thrown out. And remember, under the SEBI FAQs a band revision also extends bidding by three working days.

Revising or withdrawing a cut-off bid

Retail investors keep their options open until the issue shuts. The GID says RIIs can withdraw bids on the bid/offer closing date or revise them until 5:00 PM on that day, and UPI mandate requests have a confirmation cut-off of 5:00 PM on the closing date. QIBs and NIIs, on the other hand, can’t withdraw or lower their bids at any point after bidding. If you want to switch from a price bid to cut-off, or change the number of lots, use your broker’s modify option before that deadline.

Common mistakes with the cut-off option

• Sizing the bid at the floor price. The block happens at the cap, so sizing your lots against the floor can leave you short of funds or over the ₹2,00,000 retail limit.
• Going over the retail limit. A bid above ₹2,00,000 moves to the non-institutional category, where cut-off bids may be rejected.
• Thinking cut-off means the lowest price. It means the final offer price, which can be anywhere in the band, the cap included.
• Mixing up the cut-off price and the listing price. Cut-off is what you pay in the IPO. The listing price is found by the exchanges on listing day, and our explainer on the IPO listing day pre-open session shows how that works.
• Letting the UPI mandate lapse. A cut-off bid only counts once the block is confirmed, and pending mandates lapse at the 5:00 PM cut-off time on the closing date.

Cut-off price vs other IPO price terms

• Floor price: the bottom of the band, the lowest price you can bid at.
• Cap price: the top of the band, and the figure used to block funds on cut-off bids.
• Cut-off price (offer price): the final price fixed after bidding closes, always inside the band.
• Anchor price: the price at which anchor investors get shares in their separate bidding on the anchor investor bidding date. Our guide to anchor investors in an IPO has more.
• Listing price: where the stock opens on its first trading day, which can be above or below the cut-off.

Frequently asked questions

Is it better to bid at the cut-off price or the upper end of the band?

For a retail investor both block the same money, since cut-off bids are blocked at the cap. The difference shows up if the band is revised upward. A cut-off bid stays valid, while a fixed bid at the old cap could end up below the new offer price.

Can HNIs bid at the cut-off price?

No. The GID says bidding at cut-off is prohibited for QIBs and NIIs, and individual bids above ₹2,00,000 fall into the non-institutional category.

Do I pay the cap price if I bid at cut-off?

No. The cap is only used to block funds. You pay the final offer price on the shares you actually get, and the difference is released.

Does every IPO have a cut-off option?

The cut-off option is for book-built issues, where the price is discovered inside a band. In a fixed price issue the price is set in the prospectus from the start, so there’s nothing to discover.

The short version for retail bidders

The IPO cut off price is the final offer price that comes out of book building, and the cut-off option lets retail investors, employees and eligible shareholders accept it without having to guess. Your money is blocked at the cap, you pay only the final price on the shares you’re allotted, and your bid can’t fail because of price. What cut-off can’t do is improve your chances in an oversubscribed retail book. So read the RHP, size your lots against the cap and stay inside the ₹2,00,000 retail limit.

This article is for education only and is not investment advice. The IPO, price band, lot size and amounts in the worked example are hypothetical. Rules are summarised from SEBI’s ICDR FAQs and the General Information Document; always read the RHP of the specific issue and consult a SEBI-registered investment adviser before making investment decisions.