What is IPO Allotment Process?

The IPO allotment process is managed by the company's registrar, which is based on the number of shares available and the valid bids received at or above the cut-off price during the IPO subscription period.
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What is IPO Allotment Process?
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3 mins read
28 January 2025

IPO allotment process is how a company distributes its shares to investors after the subscription ends. Managed by the registrar, it looks at valid bids that meet the eligibility criteria and cut-off price. If the IPO is undersubscribed, all applicants get the shares they requested. However, if it is oversubscribed, shares are allocated either proportionally or through a lottery. Successful applicants have shares credited to their Demat accounts, while refunds are given for unallotted shares.

IPO allotment rules

The process of allocating IPO shares involves careful consideration of various factors. The Registrar, in conjunction with the designated stock exchange, determines the allotment based on the number of shares offered and the bids received from investors in different categories (Retail, NII, QIB).

Key points:

  • Valid applications only: Only valid applications are considered for allocation. Invalid applications, such as those with incorrect Demat account numbers or multiple applications with the same PAN, are rejected.
  • Cut-off price: Only applications received at or above the cut-off price are eligible for allocation.
  • Category-wise allotment: Allotment is typically made within each investor category (Retail, NII, QIB). Under-subscription in one category may be offset by oversubscription in another, subject to the approval of the Lead Manager, Registrar, Exchange, and issuer.
  • QIB category: Unsubscribed shares in the QIB category are not available for allocation to other categories.
  • Basis of allotment: The Registrar prepares and publishes a Basis of Allotment document that outlines the details of the allocation process and the allotment status of individual investors.

How IPO shares are allotted?

When one considers investing in an IPO, they also want to know how the shares are allocated. Perhaps, they previously attempted to participate in an IPO and didn’t receive an allocation of shares and wants to know why.

The allocation of shares happens according to the rules laid down by the Securities and Exchange Board of India (SEBI). There are three categories according to which the allocation is reserved: Qualified Institutional Buyers (QIB), Non-Institutional Investors and retail investors. It is impossible to know in advance whether an investor will receive an allocation of shares but understanding how the shares are allocated in IPO might help to set the expectations and explain why the shares may not get allocated.

Pro tip

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Procedure for allotment of shares in IPO

Before understanding the procedure of share allocation to retail investors in an IPO, it is important to understand the concept of “Lot Size”.

When a company announces IPO, its total equity shares on offer are divided into lots, each lot comprising of an equal number of shares and each application made by retail investors is in multiple of these lots.
Let’s say,
A company XYZ intends to issue 1 lakh shares in an IPO and has decided a lot size of 10 shares per lot.
In this case, Total no. of lots on offer = (Total no. of shares / Total no. of shares in 1 lot), which equals to 10,000.

Whenever a retail individual investor will bid for shares in an IPO, he/ she will bid in terms of no. of lot like 1 lot, 2 lot and so on but they cannot bid in terms of no. of shares. Once all the bids are submitted, a system process is run to eliminate all the improper submission of bids by the investors.

Additional read: What Does it Mean by Fear and Greed Index

Now, after getting the total no. of successful bids, there may be 2 cases which are:

  1. Total cumulative no. of bid lots < Total no. of lots offered
    In case the total no. of bid lots, by all the applicants combined is less than total no. of lot offered then everyone gets the allocation of same number of lots that they had bid for.
  2. Total cumulative no. of bid lots > Total no. of lots offered
    This case is little complicated. Here, while allotting the shares, SEBI rules are taken into consideration, according to which no individual can be allotted more than 1 lot.

Again, there can be sub-cases in this i.e.

  1. Small over-subscription
    In this case, each applicant with successful bid would be 1st allotted with 1 lot of shares and the balance shares shall be allotted proportionately.
  2. Large over-subscription
    If the over-subscription is extremely large then each applicant with successful bid cannot be allotted even 1 lot of shares. In this situation, according to SEBI, the lots shall be allotted on a lucky draw basis. The process is all computerized so there are no chances of any partiality.

Arbitrageurs: Arbitrageurs are those who try to make profit from the difference in the prices of an asset due to market conditions.

How to check your IPO allotment status?

You can check the IPO allotment status online through the registrar’s website or the stock exchange platform. To do so, you will need the following information:

  • PAN number
  • Application number
  • DP/Client ID (for Demat account holders)

Steps to check IPO allotment status:

  1. Visit the IPO registrar's site.
  2. Enter your details (PAN, application number, or DP/Client ID).
  3. Submit and view your IPO allotment status.

These platforms will inform whether you've received the shares or not based on the allotment process.

Conclusion

In conclusion, the IPO allotment process is a crucial stage in the journey of companies transitioning to public ownership. Understanding this process empowers investors to navigate the complexities of share allocation and manage expectations effectively. By grasping the intricacies outlined here, investors can make informed decisions and potentially capitalise on new investment opportunities.

Check related articles:

What is IPO listing time?

What is cut-off price in IPO?

What are SME IPOs?

How to Apply for an IPO Online

What is the Difference Between IPO an FPO?

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Frequently asked questions

What is IPO allotment?

IPO allotment is the process of distributing shares to successful applicants. The Registrar oversees this process, which depends on factors like investor category and subscription levels. Companies must complete allotment within five business days of the IPO closing.

 

Is IPO allotment first come first serve?

No, the IPO allotment doesn’t happen based on first come first serve. The allotment process totally depends on how the IPO got responses from the investors. If the IPO is undersubscribed, then the investor may get allotted all the lots for which they have applied. If the IPO is oversubscribed, the allocation of shares to the retail investor happens through a computerised process.

How can I increase my chances of getting an IPO allotment?

Here are some of the ways you can increase the chances of getting IPO allotment:

  • Single lot application: Applying for a single lot can increase allotment chances, especially in undersubscribed IPOs.
  • Multiple Demat accounts: Use different Demat accounts with distinct PAN numbers to enhance your chances.
  • Choose cut-off price: Opt for the cut-off price to prioritize your application in case of oversubscription.
  • Avoid last-minute rush: Apply well in advance to avoid technical issues and ensure timely submission.
  • Accurate application details: Double-check for errors in name, bank details, or spelling to prevent application rejection.
  • Consider parent company Sshares: If the parent company is preparing for an IPO, investing in their shares beforehand might be beneficial.
Is IPO allotment random?

Yes, the allotment process for IPOs in India predominantly relies on a random selection system for retail investors. This lottery approach is implemented to guarantee an equitable distribution of shares when demand surpasses supply. By using this method, every investor has an equal opportunity to receive shares.

How do you check if an IPO is allotted or not?

You can visit https://www.nseindia.com/products/dynaContent/equities/ipos/ipo_login.jsp and enter the required details to check the status of your application.

What is the exact time for IPO allotment?

The exact timing for IPO allotment varies but typically occurs within 1 to 2 weeks after the IPO subscription window closes. The IPO registrar announces allotment status post-verification and allocation process completion. Investors receive notifications through registered emails or can check allotment status on the registrar's website during this period.

Is IPO allotment based on luck?

Yes, the allotment process for IPOs in India predominantly relies on a random selection system for retail investors. This lottery approach is implemented to guarantee an equitable distribution of shares when demand surpasses supply. By using this method, every investor has an equal opportunity to receive shares.

How do you get 100% allotment in an IPO?

If an IPO is not fully or only partially subscribed, all applicants will receive an allotment. In cases of oversubscription, allocations depend on the extent of oversubscription and the investor category. According to SEBI guidelines, each Retail Individual Investor (RII) and Non-Institutional Investor (NII) is entitled to a minimum bid lot, subject to share availability. If there are more applicants than available minimum bid lots, a lottery draw determines allotments, meaning only a select few will receive shares. Conversely, if applicants are fewer than the allottees, the allotment is done on a pro-rata basis.

How IPO allotment works?

IPO allotment is determined by the number of shares available and the demand from different investor categories (Retail, NII, QIB). The allotment is conducted by the registrar in consultation with stock exchanges, and only valid applications at or above the cut-off price are considered.

What are the chances of IPO allotment?

The chances of IPO allotment depend on factors such as the demand for shares and the number of bids submitted by investors. Higher demand and oversubscription reduce the likelihood of allotment.

How is allotment done in oversubscribed IPO?

In an oversubscribed IPO, shares are typically allocated through a lottery system for retail investors. In case of high demand, applicants may receive fewer shares or none at all, as per regulatory guidelines.

How to get IPO allotment?

To improve IPO allotment chances, bid at the cut-off price and ensure correct application details. Submitting a single valid application per PAN and applying in the retail category can also increase the likelihood.

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