Answer
You get a higher chance of getting shares in a retail IPO if you bid at the ‘cut-off’ price.
Why is the cut-off price important?
- You are basically agreeing to pay the final price that is fixed after the bidding process. This final price is almost always the highest price in the IPO price band.
- Your application won’t be rejected for bidding too low.
What happens when you choose the Cut-off Price?
You block the money equal to the upper price band (the highest price).
If the final price of the IPO turns out to be lower than the upper price band, the extra money that was blocked in your bank account is released (unblocked).
What about Discounts?
The company offers a special discount for retail investors; choosing the cut-off price will automatically get you that discount. The discount is usually calculated on the final issue price.
How is Allotment Done in Oversubscribed IPOs?
In case the Retail IPO gets too many applications (oversubscribed), and the allotment of shares is done through a lottery system.
This ensures everyone who bid at the cut-off price has an equal chance, no matter how much they bid for.
A Simple Tip:
Always use the UPI-based application process. This helps avoid technical problems, and your money stays blocked in your bank account until allotment.