IPO Allotment Process: Everything You Need to Know
IPO allotment process is how a company’s shares are divided among investors who apply during an IPO. Applications are made through brokers or online platforms by choosing the number of shares and the price. After the IPO closes, the registrar reviews all applications and finalizes allotment. If oversubscribed, shares are distributed through a lottery or proportionately, if undersubscribed, every applicant gets shares. So, how are IPO shares allotted? In this article, we’ll explain the IPO allotment process, how shares are distributed across investor categories and the probability of getting shares.
IPO Allotment Rules
- IPO allotment is managed by the registrar in consultation with the stock exchange.
- Allotment depends on the number of shares available and bids received in each category like Retail, NIIs (Non-Institutional Investors) and QIB.
- Only valid applications are considered; those with wrong Demat details or duplicate PAN get rejected.
- Applications must be at or above the cut-off price to qualify for allotment.
- If any category, except QIB, remains undersubscribed, its unallotted shares may be reallocated to other categories after approval from the lead manager, registrar, exchange and issuer.
- Unsubscribed QIB shares cannot be transferred to other categories.
- The registrar publishes Basis of Allotment (BO), which explains how shares were distributed among investors.
IPO Allotment Process
Here’s how IPO allotment process works:
- Application Submission: Investors apply for shares through brokerages or online platforms using ASBA. The money remains blocked in their bank account until allotment.
- IPO Subscription Period: IPO usually stays open for 3–5 working days. During this time, investors can place their bids by choosing the price and the number of shares.
- Verification of Applications: Once the IPO closes, the registrar reviews all applications. Invalid or duplicate entries, such as incorrect Demat details or multiple applications with the same PAN, are rejected.
- Demand Calculation: Then registrar tallies the total demand across different investor categories (RetailQIB) to check whether the issue is undersubscribed or oversubscribed.
- Category wise Allotment: Shares are distributed according to SEBI guidelines for each category of investors. Retail investors, HNIs and institutions all have defined quotas.
- Allotment Method:
- If the IPO is undersubscribed, all valid applicants receive the shares they requested.
- If oversubscribed, allotment is done either on a proportionate basis (for HNIs and institutions) or through a computerized lottery system (for retail investors) to ensure fairness.
- Credit of Shares / Refunds: Allotted shares are credited to the investor’s Demat account within a few days, while those who don’t get shares have their blocked funds automatically released.
- Basis of Allotment (BO): Finally, the registrar publishes the Basis of Allotment document, which provides complete details of how shares were distributed among different investor categories.
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How IPO Shares Are Distributed
Distribution of IPO shares depends on the category of investors. SEBI has defined clear quota allocations to ensure fairness and transparency.
Retail Investor Quota
- Retail investors are individuals applying for up to ₹2 lakh.
- SEBI reserves 35% of the total IPO shares for this category.
- If oversubscribed, allotment happens through a lottery system where every investor has an equal chance of receiving at least one lot, no matter how many lots they applied for.
HNI (High Net-worth Individual) Quota
- HNIs are investors applying for more than ₹2 lakh.
- SEBI has set aside 15% of the issue size for this category.
- Allotment is done proportionately based on the number of lots applied. Unlike retail, it is not purely lottery based.
Institutional Investor Quota
- 50% of the shares are reserved for Qualified Institutional Buyers (QIBs).
- This group includes mutual funds, insurance companies, banks and foreign institutional investors.
- Allotment is proportionate and institutional participation often signals strong confidence in the IPO.
Probability of IPO Allotment
- Undersubscribed IPO: All applicants get the full shares they applied for.
- Moderately oversubscribed IPO: Shares are allotted proportionately, retail investors may still get at least one lot.
- Heavily oversubscribed IPO: Retail investors face a lottery system with equal chances, while HNIs and institutions get shares proportionate to their bids.
Conclusion
Knowing how IPO allotment works helps investors avoid confusion and set realistic expectations. Since allotment depends on factors like demand & investor category it’s important to understand how shares are allocated. For retail investors, allotment is usually through lottery while HNIs and institutions receive shares proportionately. This awareness helps investors make informed choices and approach IPO investments with confidence.
FAQs
- What is the IPO allotment process?
IPO allotment is the method of distributing shares among investors after the IPO subscription closes, based on SEBI guidelines and investor categories. - How are IPO shares allotted to retail investors?
Retail investors get allotment through a lottery system if oversubscribed, with an equal chance of getting at least one lot, regardless of application size. - How do I check IPO allotment status?
You can check allotment status online through the registrar’s website, NSE or BSE portal by entering your PAN, application number or Demat details.
