Definition
Cut-off Price
The cut-off price is the final price discovered in a book-built IPO; retail investors can bid 'at cut-off' to accept whatever that price turns out to be.
Only retail individual investors and, in some cases, eligible employees may bid at the cut-off in an Indian IPO. By choosing the cut-off option, they agree to pay the final issue price determined through book building, whether it lands at the top of the band or below.
Bidding at cut-off avoids the risk of an application being rejected for bidding too low. Since most retail bids come in at the cut-off, the actual discovery of price is driven largely by the QIB and NII demand higher in the book.
Related terms
- Retail Individual Investor (RII)An RII is an individual investor applying for up to ₹2 lakh in an IPO, who gets a reserved quota and can bid at the cut-off price.
- Book BuildingBook building is the price-discovery process where an IPO's final price is set from the bids investors submit within a price band, rather than fixed in advance.
- Price BandA price band is the maximum permissible price movement, expressed as a percentage above and below a reference price, within which a security may trade during a session before being frozen.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.