The Floor Price is the lowest price in the price band. It is the price at and above which investors can place their orders.
The highest price in the price band is referred to as the Cap Price.
Let's understand it through an example, whenever an IPO comes in the market then it may be either a fixed price offering or book building offering. As the name itself, in the first, the price of shares is fixed by the company at which shares will be allotted to investors. However, under the book-building method, a price range also called price band will be issued by the issuer company.
For example, SBI Cards IPO was issued on the book-building method at a price band of Rs. 750 - Rs. 755. Here, the lower end of the range that is Rs. 750 is called the floor price. This is the minimum set price at which IPO can be issued. However, on the other side, the upper limit of the band is Rs. 755 which is the cap price or maximum price means in any situation, SBI Cards IPO can't be issued above that level. Originally, the IPO was allotted at Rs. 755. While applying for IPO, investors can place IPO bid at any of the prices in between the specified price range. It is important to note that retail investors must place IPO bid at maximum price means cap price, if in case, IPO is issued at a price lower than maximum price, then on the allotment, additional money will be refunded to you.
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