Price Band refers to the range within which investors can bid for shares during an Initial Public Offering (IPO). It sets the lower and upper price limitsóknown as the floor price and cap priceówithin which bids are accepted. The issuer company, in consultation with its lead managers, determines this range based on factors such as the companyís valuation, market demand, and prevailing economic conditions.

In a book-building IPO process, investors submit bids within the price band, indicating the quantity of shares they wish to buy and the price they are willing to pay. After the bidding period ends, the final issue priceóknown as the cut-off priceóis decided based on demand from various investor categories, including retail, institutional, and non-institutional investors. If the demand is strong at the upper limit, the issue may be priced at the cap price; otherwise, it may be priced lower within the range.

The purpose of defining a price band is to offer flexibility to both issuers and investors. It helps the company gauge market sentiment and discover a fair price for its shares through transparent bidding. For investors, it provides an opportunity to participate at a price they deem fair, depending on their valuation outlook and risk appetite.

According to SEBI regulations, the price band must be disclosed in the IPO prospectus and advertisements before the issue opens. The difference between the floor price and cap price should not exceed 20% of the floor price. This ensures fairness, reduces manipulation risk, and promotes price discovery through investor participation. Understanding the price band is crucial for investors to make informed bidding decisions during an IPO.