The cut-off price in an IPO is the price at or below which investors can bid for shares without specifying the price. It is applicable only in book-building issues where investors can bid at any price within the specified price range.
Role of Cut-off Price in Book Building IPOs
Price Discovery
The cut-off price aids in price discovery by allowing investors to bid based on their assessment of the company's value, leading to efficient price determination.
Ensuring Fair Allocation
It ensures fair allocation of shares as investors who bid at or above the cut-off price are eligible to receive shares.
Maximising Returns
Investors who bid at the cut-off price maximise their chances of receiving shares at the final issue price, potentially leading to higher returns.
Risk Management
For investors unsure of the exact price, bidding at the cut-off price provides a risk management strategy, ensuring participation without specifying a price.
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