Reviewed on 24 Oct 2026 · Source: IPO Bulletin explainer; checked against SEBI ICDR Regulations 2018 (as amended) and offer-document practice
In a book-built IPO the company does not fix one price in advance. It announces a price band, for example Rs 95 to Rs 100, and invites bids inside that range. When bidding closes, the company and its lead managers study the order book, see how many shares were demanded at each price, and choose a single final issue price. That final price is called the cut-off price, and every successful bidder pays it regardless of the price they bid. Retail investors can tick the cut-off option on the application form. This means they agree to pay whatever final price is set within the band, so their bid cannot be rejected for being below the final price. Because the final price is unknown when you apply, the bank blocks money at the upper end of the band. After allotment, the difference between the amount blocked and the amount actually due is released back to you. Larger investors in the non-institutional and institutional categories must name a specific price and do not get this option.
Example: Suppose the band is Rs 95 to Rs 100 and one lot has 150 shares. A retail investor applying at cut-off has Rs 15,000 blocked, which is 150 shares times Rs 100. If the final price is fixed at Rs 96, only Rs 14,400 is used and the remaining Rs 600 is released.
In a book-built IPO the company does not fix one price in advance. It announces a price band, for example Rs 95 to Rs 100, and invites bids inside that range. When bidding closes, the company and its lead managers study the order book, see how many shares were demanded at each price, and choose a single final issue price. That final price is called the cut-off price, and every successful bidder pays it regardless of the price they bid. Retail investors can tick the cut-off option on the application form. This means they agree to pay whatever final price is set within the band, so their bid cannot be rejected for being below the final price. Because the final price is unknown when you apply, the bank blocks money at the upper end of the band. After allotment, the difference between the amount blocked and the amount actually due is released back to you. Larger investors in the non-institutional and institutional categories must name a specific price and do not get this option.
A price band is the range, with a lower limit (floor) and an upper limit (cap), within which investors may bid for shares in a book-built IPO. The company and its lead managers announce the band in the price band advertisement, usually a few working days before the issue opens, and the Red Herring Prospectus carries the same range. The final issue price is discovered through bidding and is fixed inside this range, so it can never be higher than the cap or lower than the floor. Under SEBI rules the cap should not exceed 120 percent of the floor price, which keeps the range reasonably tight. Retail investors normally bid at the cap or at the cut-off price so that their bid stays valid whatever the final price turns out to be. The band matters because it sets the maximum money you must keep blocked in your bank account: lot size multiplied by the cap price. Companies can revise the band during the issue, but that requires public notice and an extension of the bidding period by at least three working days. Fixed-price issues do not have a band; they have a single price.
Allotment is the step after an IPO closes in which the company decides who receives shares and how many. Once bidding ends, the registrar prepares the basis of allotment, which explains how the shares were shared between categories and applicants. If an issue is not oversubscribed in a category, most valid applicants get what they asked for. If it is oversubscribed, shares are rationed. In the retail category, successful applicants are chosen by a computerised lottery and each winner usually receives one lot, because the demand is far larger than the supply. Larger categories receive shares in proportion to their bids. After allotment, shares are credited to the demat accounts of successful applicants, and money for unsuccessful applications is released from the ASBA block. SEBI requires the whole process, from issue close to listing, to be completed within three working days. You can check your allotment status on the registrar's website using your application number, PAN or demat details, and on the exchange page for the issue.
A bid is an investor's offer to buy a specified number of shares in an IPO at a price within the announced price band. In a book-built issue, you submit a bid through your broker, your bank's net banking or a UPI-enabled app, stating the quantity in lots and either a specific price or the cut-off option. A bid can be revised upward or downward, or cancelled, while the issue is open, and a revised bid replaces the earlier one. Each bid is recorded in the exchange's order book, and the totals across all prices form the book from which the final price is discovered. The amount blocked for a bid is the number of shares multiplied by the highest price at which you bid, so bidding at the cap blocks the largest sum. If the final price is lower, the extra is released. Only one bid per category per PAN is generally allowed, with bids from the same PAN in the same category treated as duplicates. Bids placed by retail investors on the last day are accepted until the exchange cut-off, typically 5 pm, though UPI approval for the mandate needs to be completed within the same window.
Worked example
Suppose the band is Rs 95 to Rs 100 and one lot has 150 shares. A retail investor applying at cut-off has Rs 15,000 blocked, which is 150 shares times Rs 100. If the final price is fixed at Rs 96, only Rs 14,400 is used and the remaining Rs 600 is released.
