The price band is the range within which you can bid for IPO shares (for example ₹95 to ₹100) and book building is the process of collecting everyone's bids to discover the final price, called the issue price or cut-off price. Most Indian IPOs today are book-built rather than sold at a single fixed price.
Why a range instead of one price?
The company and its investment bankers do not know exactly what the market will pay. So they announce a band, a floor price and a cap. The cap is normally kept within about 20% above the floor, so the band is narrow. Demand at each price point then reveals what investors are actually willing to pay.
Think of it as a structured auction. Bharat Paints Ltd, a fictional company, sets a band of ₹95–₹100. During the bidding window, every application states two things: how many lots, and at what price within the band.
What does "bidding at cut-off" mean?
As a small investor you have two choices, and the difference matters. Let's put Priya and Rahul side by side.
Priya bids at cut-off. Cut-off means "I accept whatever final price is discovered." Her money is blocked at the top of the band (₹100 per share), and she stays in the running no matter where the final price lands. If the issue price is set at ₹98, she is considered at ₹98 and the extra ₹2 per share is released.
Rahul bids at ₹96, a specific price. He is saying "I will buy only at ₹96 or below." If the final price comes in at ₹98, his bid is simply out. He cannot be allotted anything, even if the IPO had shares to spare at his category.
| Priya (cut-off) | Rahul (₹96 fixed) | |
|---|---|---|
| Amount blocked | At ₹100 (band top) | At ₹96 |
| Final price ₹98 | Eligible for allotment | Bid rejected |
| Final price ₹95 | Eligible; excess released | Eligible |
For popular IPOs, almost all retail investors bid at cut-off for exactly this reason. A specific-price bid below the final price knocks you out entirely.
How is the final price actually fixed?
Once the window closes, the bankers look at the demand "book". How many shares were bid for at each price. If Bharat Paints received bids for ten times the shares on offer at ₹100, but only twice at ₹95, strong demand lets them fix the price at or near ₹100. Weak demand pushes the price toward the floor. Everyone who is allotted shares pays the same final issue price, regardless of where in the band they bid (as long as their bid was at or above it).
You always bid in whole lots, never in loose shares. One lot might be 150 shares, so a cut-off bid blocks 150 × ₹100 = ₹15,000. How the lot is decided and what it means for your application size is covered in what is the lot size in an IPO? And what happens to all these bids after the window closes is the subject of how does IPO allotment work?
Things to keep in mind
- Bidding at cut-off keeps you eligible at any final price; a specific-price bid below the final price is rejected outright.
- Your money is blocked at the highest possible amount for your bid; any excess after price discovery is released, not lost.
- A price at the top of the band signals strong demand, but strong demand in the IPO does not guarantee a strong listing.
- The band itself is chosen by the company and its bankers. It reflects what they hope to get, so judge the valuation, not just the band.
Read next
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