Cut-Off Price in IPO: Should You Choose It?

Every book-built IPO application in India carries a “cut-off price” checkbox right next to the bid price field. For most retail investors, ticking that box is the safer default, but it is not automatic. Here’s what the cut-off price actually means, how it is decided, and when you might want to bid a specific price instead.

What Is the Cut-Off Price in an IPO?

The cut-off price is the final price at which a company allots shares to investors in a book-built initial public offering (IPO). Instead of fixing one price in advance, the company announces an IPO price band, a range with a floor (minimum) and a cap (maximum). Investors bid anywhere within this band, and once the bidding window closes, the company and its book running lead managers (BRLMs) study total demand at every price point and settle on a single price. That price is the cut-off price, and it becomes the issue price for everyone who is allotted shares.

Selecting “bid at cut-off price” instead of typing in a specific number means you are telling the exchange you are willing to pay whatever the final price turns out to be, as long as it stays within the announced band. Only retail individual investors (RIIs), applying up to ₹2 lakh, and eligible employees or shareholders bidding under reserved quotas can use this option. Non-institutional investors (NIIs) and qualified institutional buyers (QIBs) must always specify an exact price.

A Quick Example

Suppose a company’s IPO price band is ₹200 to ₹220 per share. After the three-day bidding window closes, demand analysis shows that ₹215 is the highest price at which all shares on offer get fully subscribed. So ₹215 becomes the cut-off price.

• An investor who selected “cut-off price” gets shares at ₹215, regardless of the final number.
• An investor who bid a specific ₹210 gets rejected, because ₹210 is below the cut-off, and the blocked amount is released.
• An investor who bid ₹220 (the cap) also gets shares at ₹215, since nobody pays more than the cut-off price, and the ₹5 difference is unblocked.

Read More: IPO Cut-off Price | Lemonn Blog

How the Cut-Off Price Is Determined

The cut-off price emerges from SEBI’s book-building process, which runs in a fixed sequence:

1. Price band announcement: The company files its red herring prospectus and announces the floor and cap prices at least two working days before the IPO opens. Under SEBI’s ICDR Regulations, the cap cannot exceed 120% of the floor price, which keeps the band reasonably tight.
2. Bidding window: The issue stays open for a minimum of three working days, during which RIIs, NIIs, and QIBs submit bids through ASBA (Application Supported by Blocked Amount).
3. Demand aggregation: Every bid is recorded and sorted by price. This builds a demand curve showing how many shares are sought at each price point within the band.
4. Price discovery: The cut-off price is set at the lowest price at which cumulative demand meets or exceeds the total shares on offer. In formula terms:
5. Cut-off price = the lowest price P such that the total demand for bids ≥ P equals or exceeds the total shares offered.

For example, say a company is offering 1,00,000 shares within a ₹100 to ₹110 band. Bids at each price level, and the cumulative demand from the top of the band downward, look like this:

₹110	20,000	20,000
₹107	30,000	50,000
₹104	35,000	85,000
₹100	25,000	1,10,000

Cumulative demand stays short of the 1,00,000 shares on offer until it reaches ₹100, where it climbs to 1,10,000 and finally covers the issue. So ₹100 becomes the cut-off price, the lowest price at which demand fully absorbs the offering.

1. Allotment: Every eligible bid at or above the cut-off price is considered for allotment at that single price. Bids below it are rejected outright, and blocked funds are released.

In practice, heavily oversubscribed mainboard IPOs almost always see the cut-off price settle at the cap price, since demand comfortably clears supply even at the top of the band. In moderately subscribed issues, the cut-off can land anywhere within the band, and in weak IPOs, it may sit near the floor.

Cut-Off Price vs. a Specific Bid Price: What’s the Difference?

This is where the meaning of the IPO bid price often confuses first-time applicants. When you bid a specific price, you are naming the maximum you are willing to pay. If the final cut-off price is higher than your bid, your application is rejected entirely, not partially filled. If it is equal to or lower, you get shares at the cut-off price, and the difference is refunded.

Aspect	Bid at Cut-Off Price	Specific Bid Price
What you’re agreeing to	Any price within the announced band	A price you choose, up to the cap
Risk if final price is higher than your number	None; you’re never priced out	Application rejected
Funds blocked	At the cap price	At your chosen bid price
Who can use it	Retail investors, eligible employees, shareholders	All investor categories
Best suited for	Investors prioritising allotment odds over price control	Investors with a firm valuation view

Should You Choose the Cut-Off Price?

For most retail investors, yes, and here is why.

It keeps your application valid no matter where the price lands. A specific bid below the eventual cut-off is rejected outright. Since retail investors cannot know in advance where institutional and HNI demand will push the price, cut-off bidding removes that guesswork.

It does not cost you anything extra if the price settles lower. Your bank blocks funds at the cap price under ASBA, but you are only debited at the actual cut-off price. Any difference is unblocked automatically, usually within a day of allotment, so there is no real financial downside to selecting the cut-off option over guessing the exact number.

It simplifies a decision most retail investors are not equipped to make precisely. Predicting where institutional demand will settle within a ₹10 or ₹15 band is genuinely difficult, even for experienced investors.

There are situations where a specific bid makes more sense, though:

• You have a firm price ceiling in mind. If you believe the company is only worth the floor price and would rather skip the IPO than pay the cap, bidding a specific number below your comfort level protects you from an unwanted allotment at a price you consider expensive.
• You want lower funds blocked upfront. Cut-off bidding always blocks money at the cap price. If liquidity matters to you during the subscription window, a lower specific bid ties up less capital, at the cost of a real chance of rejection.

For a heavily hyped, likely-oversubscribed IPO, the practical difference between bidding at cut-off and bidding at the cap price is often negligible, because allotment in oversubscribed retail categories is decided by a computerised lottery, not by who bid what. Every valid application at or above the cut-off price has an equal shot per lot. Where cut-off bidding genuinely helps is in avoiding accidental rejection, not in improving lottery odds.

What Happens to Your Blocked Funds

Under ASBA, your bank blocks the full amount at the cap price the moment you apply, whether you chose cut-off or a specific bid at the cap. If the actual cut-off price comes in lower, the difference is unblocked once allotment is finalised, typically within a day. If you receive no allotment at all, the entire blocked amount is released. No cheques change hands, and no money leaves your account until shares are actually allotted to you.

Read More: ASBA | Lemonn Blog

A Recent Change Worth Knowing: SME IPOs No Longer Allow Cut-Off Bidding

If you also invest in SME IPOs, note that the rules changed materially from July 1, 2025. Under SEBI’s ICDR (Amendment) Regulations, 2025, the earlier “retail individual investor” category in SME IPOs was replaced with a new “individual investor” category requiring a minimum application of two lots worth over ₹2 lakh, and the cut-off price option was withdrawn entirely for every investor category. Every SME IPO bidder must now name an exact price, and downward revision or cancellation of bids is also no longer permitted. This change does not affect mainboard IPOs, where retail investors can still bid at cut-off price as before, but it is a distinction worth remembering if you apply to both segments.

Key Takeaways

• Cut-off bidding is the practical default for most retail investors. It costs nothing extra if the price settles below the cap, and it protects you from being rejected purely because your guess landed under the final price.
• It never costs you more than the actual issue price. Your bank blocks funds at the cap price under ASBA, but you are only debited at the cut-off price once it is finalised, and any difference is unblocked automatically.
• It does not improve your odds in a lottery-based allotment. In oversubscribed IPOs, every valid retail application at or above the cut-off price has an equal chance per lot, whether you bid at cut-off or at the cap.
• Reserve a specific bid for a genuine price ceiling. If you would rather skip the IPO than pay the cap price, naming your own number protects you from an allotment you consider too expensive.
• The cut-off option is not available everywhere. Only retail individual investors and eligible employee or shareholder quotas can use it in mainboard IPOs, and it has been removed entirely for SME IPOs since July 1, 2025.

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