IPO price band and book building explained (with example)
Updated 26 October 2026 · 5 min read
A price band is the range of prices within which investors can bid for shares in an IPO, for example ₹100–105. The lower end is called the floor price and the upper end the cap price. Under SEBI rules the cap can be at most 120% of the floor. After bidding closes, the company and its lead managers fix one final issue price inside the band, based on the demand received.
This way of discovering the price through bids is called book building, and almost every mainboard IPO in India uses it. This guide explains how it works, how it differs from a fixed price issue, and why, in practice, most popular IPOs end up priced at the top of the band.
What the price band tells you
- The range in which you can bid. A bid outside the band is not accepted.
- The amount blocked for each lot: brokers block lot size multiplied by the cap price, even if you bid lower.
- The valuation the company is asking for: the market capitalisation at the upper band is often quoted in news and on IPO pages.
- The basis of the price: the RHP section "Basis for issue price" compares the band with earnings per share, P/E, return on net worth and listed peers.
The price band is announced at least two working days before the issue opens, usually together with the RHP. The lot size is announced at the same time, and it follows from the band.
Book building vs fixed price issues
| Feature | Book-built issue | Fixed price issue |
|---|---|---|
| Price known in advance | Only a band; final price fixed after bidding | Yes, one price from the start |
| How investors bid | Choose a price within the band, or cut-off (retail) | Apply at the fixed price |
| Demand visible during the issue | Yes, category-wise subscription is published | Yes, but price does not respond to it |
| Minimum days open | At least 3 working days, at most 10 | Varies by rules for the issue type |
| Where common | Almost all mainboard IPOs | Some SME IPOs and smaller issues |
Check the RHP or prospectus of each issue to see which method it uses.
The idea behind book building is simple: rather than the company guessing a price, investors reveal how many shares they want at each price, and the price is set where demand is strong enough to sell the whole issue.
How the final price is set
While the issue is open, every bid is recorded in an electronic "book" with its price and quantity. After closing, the lead managers look at the demand at each price level within the band. The final price is chosen by the company and the lead managers within the band, considering how much demand there is, the quality of that demand (institutional bids carry a lot of weight) and how the shares are likely to trade.
Retail bids at cut-off are counted at the cap price, because a cut-off bidder agrees to pay whatever price is fixed. Anchor investors, who bid a day before opening, also give an early signal of the price that large institutions accept.
The floor and cap rule
SEBI rules say the cap of the price band cannot be more than 120% of the floor. So if the floor is ₹100, the cap can be at most ₹120. In practice, most mainboard bands are much narrower than that, often just a few rupees wide on a price in the hundreds. The band can be revised while the issue is open in some cases, and if that happens the bidding period is extended; such revisions are uncommon.
Why most issues price at the top of the band
- Strong demand: in a well-subscribed issue there are enough bids at the cap to sell the whole issue, so there is no reason to go lower.
- Cut-off bids: most retail bids are at cut-off, which counts as demand at the cap.
- Seller interest: the company and any selling shareholders naturally prefer the highest price that demand supports.
- Bands are set with this in mind: lead managers usually set the band after sounding out institutions, so the cap is often a price they already expect to clear.
An issue priced below the cap is usually a sign of weaker demand. It does not happen often in busy markets, but it does happen, which is one reason to look at final pricing and subscription together.
Worked example
Say an IPO has a price band of ₹100–105 and a lot of 142 shares. For one lot, your broker blocks 142 × ₹105 = ₹14,910, whether you bid at ₹100, ₹103 or cut-off.
| Your bid | Final price ₹105 | Final price ₹102 |
|---|---|---|
| Cut-off | Eligible; pay ₹14,910 per lot if allotted | Eligible; pay 142 × ₹102 = ₹14,484, and ₹426 is released |
| ₹105 | Eligible; pay ₹14,910 per lot | Eligible; pay ₹14,484 per lot, rest released |
| ₹102 | Not eligible: bid below final price | Eligible; pay ₹14,484 per lot |
| ₹100 | Not eligible | Not eligible |
Illustration only. If you bid at or above the final price, you always pay the final price, never your bid price.
The example shows why bidding below the cap rarely helps a retail investor: you do not get a cheaper price, you only risk being left out.
Common mistakes
- Thinking you will pay less by bidding at the floor. Everyone allotted pays the same final price.
- Keeping only enough money for the floor price. The block is always at the cap.
- Reading a high cap as a sign of quality. The band reflects what the sellers ask, not what the business is worth to you.
Each IPO page on this site shows the price band, lot size and minimum amount at the cap, along with live subscription by category, so you can see the band and the demand side by side.
Frequently asked questions
Who decides the IPO price band?
The company decides it together with its book running lead managers, usually after gauging institutional interest. It must follow SEBI rules, including the cap being at most 120% of the floor.
Can the final IPO price be outside the price band?
No. The final issue price is fixed within the band announced for the issue.
Why is the full cap amount blocked if I bid lower?
Because the final price is not known when you bid. Blocking at the cap makes sure enough money is available; the unused part is released after allotment.
What is the difference between book building and fixed price?
In a book-built issue investors bid within a band and the price is discovered from demand. In a fixed price issue the price is set in advance and investors simply apply at that price.
Does a final price at the top of the band mean a good IPO?
Not necessarily. It shows that demand was strong enough at that price. It says nothing certain about listing performance or long-term returns.