IPO Cut-Off Price Explained for Retail Investors

Where the price comes from

In India most IPOs on the mainboard employ the book-building approach. The company sets out a price range, with a minimum price at the lower end and a maximum price at the higher end. According to SEBI's ICDR rules the maximum price may not exceed 20% above the minimum price. While the bidding period is going on, investors submit bids within this price range and the lead managers then determine a single final issue price on the basis of the level of demand. This final price is known as the cut-off price and all investors who are successful in a particular category are given shares at that single price.

What bidding at cut-off means

When you place a bid at cut-off, you do not state a price; instead, you are indicating to the system that you will accept the final issue price regardless of what it is, as long as it falls within the specified range. It is for this reason that your bid cannot be rejected on the grounds of being too low.

If you place a bid of ₹210 the bid will be below the cut-off and thus be rejected, meaning that you get no shares and the funds that were blocked are released.

How the money works

With IPO applications going through ASBA, the money remains in your own bank account but is held back until you are allocated shares. When the cut-off option is chosen, the amount that is blocked is calculated on the basis of the cap price, which is the highest price in the price band. In the event that the final price ends up being lower than the cap price, only the amount corresponding to the final price is charged off and the remainder is released.

As an example, using fictitious figures: a band ranging from ₹200 to ₹210, consisting of a large number of 70 shares. The amount blocked at the cap is ₹14,700 (which is 70 multiplied by ₹210). If the final price is fixed at ₹205, the cost of the batch will be ₹14,350 and therefore ₹350 will be released after allotment; if the final price is ₹210, then the full amount of ₹14,700 will be used.

Who can use it

The cut-off option is limited to certain categories:

• Retail individual investors, whose total bid doesn’t exceed ₹2 lakh, including NRIs and HUFs in that category
• Eligible employees bidding under a reserved employee quota

Non-institutional investors (those with applications exceeding ₹2 lakh) and qualified institutional buyers are required to submit their bids at a particular price within the given range. This rule applies to book-built mainboard issues.

Cases where it isn’t available

With fixed-price offerings there is no price band and also no cut-off facility since the price has already been determined. According to reports, the bidding structure has been altered by SEBI's 2025 amendments to the ICDR rules for SME IPOs, the minimum application amount having been increased above ₹2 lakh and the cut-off option having been abolished. Since the rules for SME offerings have recently been changed, the offer document for the particular IPO should be consulted.

Specific price or cut-off: the practical difference

Since both options hold the money at the cap, neither of them locks up less cash. The point of difference is what occurs at the final price:

	Bid at cut-off	Bid at a specific price
Price you name	None	A price within the band
Pays	Final issue price	Final issue price, if your bid is at or above it
If final price exceeds your bid	Not applicable	Bid is rejected
Funds blocked	At the cap price	At your bid price

In cases where there is strong demand, the final price usually ends up at or close to the cap, which is the reason why a lower specific bid may be inadequate. When demand is weak, the final price may be set below the top of the range. It is impossible to tell in advance which of these two scenarios will occur, and it therefore comes down to a personal choice for the applicant.

Lot size and the ₹2 lakh limit

IPO shares are issued in lots, the size of which is given in the offer document. The lowest amount one can apply for is one lot, and the value is determined at the cap price. A retail applicant may apply for as many lots as they like, provided that the total amount remains at or below ₹2 lakh when calculated at the cap price; if it goes above that limit the application is classified as non-institutional, in which case a cut-off is not permitted and the process of allotment is different.

How an application works step by step

1. Choose the IPO from the list of open issues on your broker's app or on the exchange's website.
2. Type the number of lots and either choose cut-off or enter a price in the band.
3. Type in your UPI ID, which will send a mandate request to your UPI app.
4. You must approve the mandate within the time limit, for if the request is not approved then the application will not be valid.
5. Hold until the bidding period has closed and then wait for the allotment, which is usually finalised a few working days later.

After bidding closes

When the bidding has closed, the registrar finalises the basis on which the shares are allocated and then declares the final price. The shares of successful bidders are credited to their demat account and the money is made available to the others. Listing usually takes place within a few working days after the closing of the issue, in accordance with the T+3 timeline which SEBI uses for public offerings. The dates are given in the offer document and also by the exchanges.

How allotment works for retail

In the majority of mainboard IPOs, a certain proportion of the net offer is set aside for the retail segment. If this segment is oversubscribed, allocation is usually carried out by a computerised lottery in which each eligible applicant has an equal opportunity to receive the minimum amount. In the lottery, a cut-off bid is handled in the same way as a specific bid, on the condition that the specific bid is at or above the final price.

Common mix-ups

• The fact that it says 'cut-off' doesn't mean that it refers to the cap; rather, it means the last price that is discovered, although the blocked funds are calculated at the cap.
• It is not a discount; all those who have been given shares in that category pay the same price, except in the case of any announced retail or employee discount.
• There are several bids; in a single application an applicant typically being able to submit up to three bids at different prices, although the rules regarding the cut-off in the case of multiple bids are specified in the offer document.
• It doesn't itself improve the chances of a grant being awarded; it only ensures that a bid isn't rejected on grounds of price.

Tracking IPOs on Dhanush 2.0

The IPO Tracker available with Dhanush 2.0 shows all currently open and forthcoming issues, including the price ranges and dates, and applications can be made using the same demat and trading account. Ashika has more than 30 years' experience in the securities market, and both the IPO Tracker and Portfolio Analytics serve to allow investors to keep track of the shares that have been allocated after listing.

Key Things to Know

1. The cutoff price is the final issue price determined at the end of the bookbuilding process and it always remains within the stated price range.
2. Retail applicants and eligible employees may place their bids at cut-off, while larger applicants have to bid at a particular price.
3. The funds are held at the cap price, and the difference is released if the final price is lower.
4. A bid that is below the final price is rejected and the cut-off does not apply in the case of fixed-price issues or, as a result of the more recent changes, to SME IPOs.