Definition
A price band is the range of prices within which investors can bid for shares in an IPO (Initial Public Offering). It has a lowest price, called the floor price, and a highest price, called the cap price. The company announces this range before the IPO opens. After the bidding closes, the final issue price is decided based on demand.
Example
Suppose a company sets a price band of Rs 95 to Rs 100 per share for its IPO. This means investors can bid at a price within this range. After the IPO closes, the company sets the final issue price at Rs 98 per share. Investors who receive an allotment and whose bids qualify at the final issue price pay Rs 98 per share.
Caution
A price band only tells you the range within which you can bid for shares. It does not guarantee that the IPO is fairly priced or that the shares will list at a profit. Before applying, review the company's financial performance and IPO offer document.