An investor may be aware of an Initial Public Offering (IPO), but may not be aware about everything about the offering. One of the most significant parts is the cut-off price in IPO. Let’s Discuss this term to help investors to make better investment decisions.
Table of Contents
What is a cut-off price in IPO?
The cut-off price in an IPO (Initial Public Offering) is the value at which stocks get allotted to the investors by a company through it’s registrar according to the guidelines of Securities and Exchange Board of India (SEBI).
An initial public offering (IPO) book-building issue starts with a price band. There is a lowest and highest price for the IPO Bid. The bidder can bid for the appropriate amount in pairs of the lot size at a price that is within the permissible limit.
When you choose the cut-off as the price, you’re confirming that you’re ready to file for the IPO at the issue price decided by the Merchant bankers after all submissions have been submitted.
Example of Cut-off Price
If an IPO’s price band is Rs. 350 to Rs. 353, and you had applied for 42 stocks at Rs. 351. Considering you were willing to participate in the issue up to Rs. 351, you will receive an allocation at Rs. 351 if the decided issue price is Rs. 351.
Otherwise, if the decided issue price is Rs.352, you will not be eligible for a share allotment. If you choose cut-off, you will be eligible for allotment at any issue price within the range.
Who decides the cut-off price in IPO?
In a book-building offer, the issuer must disclose in the red herring prospectus either a price range or a minimum price. The final determined issue price could be anywhere within the pricing band or over the floor price.
So an IPO cut-off price could be any pricing within the price range, is decided by the Issuer and book running lead managers after all applications are received.
Only retail individual investors are allowed to subscribe at the cut-off price, according to SEBI regulation.
Importance of Cut-off price in IPO
When an IPO is approaching the end of its entire process investment bankers begin the practice of price discovery. Nevertheless, because no fixed price has been published, there are a range of bids that emerge at multiple rates.
The ultimate price is determined by the bankers using a weighted average of all the bids submitted in total. The cut-off price is the ultimate price that is selected.
The cut-off price is frequently the ceiling price in the situation of attractive issues that generate bids in surplus of the number of stocks on offer.
Process after the Cut-off price is decided
Investors who submitted bids below the cut-off price will be repaid their entire amount after allotment since they will not be awarded the IPO as their bids are below the cut-off price. Those that placed bids above the cut-off price and received allotment are also refunded the difference if any.
If an investor wishes to acquire an IPO at any cost, they must select the option to buy at cut-off while filling out the application.
This ensures that the individual remains eligible for the allotment regardless of the cut-off price.
Conclusion
Almost all corporations use a book-building method to set the cut-off price of their stocks in the modern environment. This strategy has proven to be adaptable, reliable, and effective in the majority of circumstances.
This is all from our side regarding the Cut-off price in IPO. Let us know your views in the comment section.
Other Interesting blogs related to cut off price in ipo
FAQ About cut off price
cut-off price in ipo zerodha
You can find it after the price range mentioned on the screen.
how to calculate cut-off price?
Cut-off price is decided on the basis of bid price mentioned in applications received for a particular IPO.
should i select cut-off price in ipo?
Yes, If you wish to increase the chances of getting the allotment you must select the cut-off price.
cut-off price calculation?
The cut-off price is determined by the bankers according to a weighted average of all the applications submitted.
cut off price meaning in hindi?
आईपीओ (आरंभिक सार्वजनिक पेशकश) में कट-ऑफ मूल्य वह मूल्य है जिस पर एक कंपनी द्वारा निवेशकों को स्टॉक आवंटित किया जाता है, हालांकि यह भारतीय प्रतिभूति और विनिमय बोर्ड (सेबी) के दिशानिर्देशों के अनुसार रजिस्ट्रार करता है।
