How the final price is set
In a book-built IPO, investors bid at any price within the band. After bidding closes, the company and its lead managers look at demand at each price and fix the final issue price. That price is the cut-off.
An example
Say an IPO has a price band of ₹258 to ₹271 and a lot of 55 shares. If you tick cut-off for one lot, your bank blocks ₹14,905 (55 × ₹271). If the final price is ₹271, you pay that. If it is set lower, you pay the lower price for any shares allotted and the difference is released.
Worked example using illustrative numbers. Our calculation.
Why it matters
A bid below the final price is rejected. Ticking cut-off keeps your bid valid at any price in the band, which is why most retail applications use it. It does not change your odds in the allotment lottery.
The price you actually get the shares at is what decides what you are paying for. Each IPO page has a valuation calculator that works from the upper end of the band. See upcoming IPOs.
Source: SEBI ICDR Regulations 2018, book building process.
Frequently asked questions
Who can bid at the cut-off price?
Retail investors, and applicants in the employee and shareholder quotas, can tick cut-off. QIBs and NIIs must bid at a specific price.
How much money is blocked when I bid at cut-off?
The amount at the upper end of the price band. If the final price is lower, the difference is released after allotment.
Does bidding at cut-off improve my chance of allotment?
It makes sure your bid stays valid whatever price is set, because a bid below the final price is rejected. It does not improve your chance in the retail lottery.
Is the cut-off price always the upper end of the band?
Most of the time, especially for issues with strong demand, but not always. The company and lead managers set it after bidding closes.