Introduction: Why “Cut-Off Price” Matters So Much
For many first-time investors in India, the term cut-off price sounds confusing. You see it while applying for an IPO, your bank asks whether you want to apply at cut-off, and finance YouTubers keep repeating the phrase—yet very few explain it properly.
Understanding the cut-off price can:
- Increase your IPO allotment chances
- Reduce rejection risk
- Help you make smarter investment decisions
- Prevent costly beginner mistakes
This guide explains everything about cut-off price—from basics to advanced strategies—with real examples, numbers, FAQs, and expert insights.
What Is Cut-Off Price?
Simple Definition
Cut-off price is the final issue price decided by the company after IPO bidding ends.
When a retail investor selects the cut-off option, they agree to buy shares at whatever final price is fixed within the price band.
👉 In simple words:
“I agree to buy the shares at the final price decided by the company.”
Cut-Off Price in IPOs (India)
In Indian IPOs, companies do not fix a single price initially. Instead, they announce a price band, such as:
₹95 – ₹100 per share
After bidding:
- Demand is analyzed
- Institutional bids are evaluated
- The final price is fixed → called the cut-off price
Retail investors are allowed to choose “Cut-Off” instead of entering a specific price.
Who Can Apply at Cut-Off Price?
| Investor Category | Can Choose Cut-Off? |
|---|---|
| Retail Individual Investor (RII) | ✅ Yes |
| High Net-Worth Individual (HNI) | ❌ No |
| Qualified Institutional Buyer (QIB) | ❌ No |
| Anchor Investors | ❌ No |
📌 Only retail investors (investment up to ₹2 lakh) can use the cut-off option.
Why Cut-Off Price Is Important for Retail Investors
1. Higher Allotment Probability
If the cut-off price is ₹100 and you bid at ₹95:
- Your application becomes invalid
- You get zero allotment
But if you select cut-off:
- Your bid is always valid
- You stay eligible for allotment
2. Protection Against Underbidding
Many beginners bid at the lower end thinking it saves money.
In reality:
- Most IPOs are priced at the upper band
- Underbidding often leads to rejection
Cut-off eliminates this risk.
Cut-Off Price vs Price Band
| Feature | Price Band | Cut-Off Price |
|---|---|---|
| Announced before IPO | ✅ Yes | ❌ No |
| Final price | ❌ No | ✅ Yes |
| Known to investors | ✅ Yes | ❌ No |
| Used in application | Optional | Retail only |
Example: Cut-Off Price Explained with Numbers
Example IPO
- Company XYZ Ltd
- Price Band: ₹90 – ₹100
- Lot Size: 150 shares
Case 1: You Select Cut-Off
Final price decided: ₹100
Investment:
150 × 100 = ₹15,000
Allotment: ✅ Eligible
Case 2: You Bid ₹95
Final price: ₹100
Result:
- Bid price < final price
- ❌ No allotment
How Is Cut-Off Price Decided?
The cut-off price is determined using book-building process, regulated by (SEBI).
Factors Considered
- Institutional demand (QIB portion)
- Retail subscription levels
- Grey Market Premium (GMP)
- Company valuation
- Market sentiment
- Peer comparison
Role of NSE and BSE in IPO Pricing
and provide:
- Real-time bidding data
- Subscription numbers
- Demand analytics
These directly influence the final cut-off price.
Is Cut-Off Price Always the Upper Band?
👉 In most cases: YES
Statistics show:
- Over 85% of successful IPOs are priced at the upper end
- Highly subscribed IPOs always hit upper band
However, exceptions exist during:
- Weak market conditions
- Poor investor sentiment
- Overvalued offerings
Advantages of Applying at Cut-Off Price
✔ Zero Rejection Risk
✔ No Need to Predict Price
✔ Faster Application
✔ Beginner Friendly
✔ SEBI-Recommended for Retail
Disadvantages of Cut-Off Price
❌ No Price Control
You may pay:
- Maximum price
- Even if demand weakens
❌ Not Suitable for Value Investors
If valuation matters more than allotment, fixed price bidding may be better.
Cut-Off Price in SME IPOs
SME IPOs differ slightly:
- Higher lot sizes
- Lower liquidity
- Often fixed price issues
Many SME IPOs do not offer cut-off option.
Always read the Red Herring Prospectus (RHP).
Cut-Off Price vs Fixed Price IPO
| Feature | Book Building IPO | Fixed Price IPO |
|---|---|---|
| Price Band | Yes | No |
| Cut-Off Option | Yes | No |
| Final Price Known Before | No | Yes |
| Risk Level | Medium | Low |
Common Myths About Cut-Off Price
❌ Myth 1: Cut-Off Means Cheaper Shares
✅ Reality: It usually means maximum price
❌ Myth 2: Cut-Off Guarantees Allotment
✅ Reality: Oversubscription still applies
❌ Myth 3: HNIs Can Use Cut-Off
✅ Reality: Only retail investors
IPO Strategy: When Should You Choose Cut-Off?
Always Choose Cut-Off If:
- You are a first-time investor
- IPO is highly subscribed
- Goal is listing gains
Avoid Cut-Off If:
- Valuation seems expensive
- Market sentiment is bearish
- You want long-term value investing
Cut-Off Price and ASBA Explained
ASBA (Application Supported by Blocked Amount):
- Funds are blocked, not deducted
- Exact amount blocked = cut-off price × lot size
Unused funds are released after allotment.
Real-Life IPO Case Study
Example: Tata Technologies IPO
- Price Band: ₹475 – ₹500
- Cut-Off Price: ₹500
- Subscription: 69×
- Listing Gain: 140%
Retail investors who selected cut-off benefited the most.
Final Verdict: Should You Choose Cut-Off Price?
If your goal is:
- ✅ Allotment
- ✅ Ease
- ✅ Beginner safety
👉 Always choose CUT-OFF PRICE
If your goal is:
- 🎯 Valuation-based investing
- 🎯 Long-term holding
👉 Analyze pricing carefully.
