UNDERSTANDING ALLOTMENT: HOW SHARES ARE DISTRIBUTED IN LATEST IPO

Understanding Allotment: How Shares Are Distributed in Latest IPO

Understanding Allotment: How Shares Are Distributed in Latest IPO

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Initial Public Offerings (IPOs) provide investors with an opportunity to buy shares in companies transitioning to public ownership. When companies announce a new IPO, it creates excitement and opens the door for capital growth. 

For investors, the first step is to open Demat account or open trading account. Understanding the IPO allotment process is crucial for navigating share allocation and setting realistic expectations.

IPO Allotment Process and IPO Types


The IPO allotment process involves distributing shares among investors once the application period ends. 

Investors apply under different IPO types, usually split into three main categories: Qualified Institutional Buyers (QIB), Non-Institutional Investors (NII) and Retail Individual Investors (RII).

 

  • QIBs: Financial institutions like banks and pension funds fall into this category. They receive a reserved allocation, and any under-subscription here does not transfer to other categories.



  • NII: High-net-worth individuals apply under this category and are allocated shares proportionate to their bid size.



  • RII: Individuals investing up to INR 2 lakh, generally the highest volume in the latest IPO.


 

Key Rules and Procedures for Allotment


IPO allotment involves several key rules and steps:

1. Application Validation


Invalid applications, such as multiple applications under one PAN, are rejected.

2. Cut-Off Price


Only bids at or above the cut-off price are eligible for allotment.

3. Category-wise Allotment


Shares are allocated within each IPO type. Undersubscription in one group can occasionally offset another, but not in the QIB category.

Scenarios Affecting Allotment in Latest IPOs


Allotment depends on the total number of bids received:

1. Under-Subscription


If bids fall below the shares available, all valid applicants receive full allotment.

2. Over-Subscription


When demand exceeds supply, SEBI guidelines ensure fairness. This may include a lottery system in the case of high oversubscription.

Importance of Lot Size in Allotment


IPO applications for retail investors are made in ‘lots’, where a lot represents a fixed number of shares determined by the issuing company. 

For instance, if a company plans to release 1 lakh shares in the latest IPO and sets the lot size at 10 shares, the IPO offers 10,000 lots in total. Retail investors apply in multiples of these lots (e.g. 1 lot, 2 lots, etc.), without the option to bid for individual shares.

Understanding the lot size is essential because, in cases of oversubscription, allocation prioritises applicants by lot rather than by individual share count. 

This approach is consistent across various IPO types, ensuring that all categories adhere to a standard allocation method. Therefore, the larger the demand, the less certain investors become about receiving shares in any IPO types they apply for.

Reasons for Non-Allotment in IPOs


Investors may sometimes find they didn’t receive any shares, especially when IPOs are oversubscribed. Here are some common reasons for non-allotment:

1. Invalid Application


Errors in PAN or demat account details, or submitting multiple applications under the same PAN, can render an application ineligible.

2. Oversubscription


When demand is exceptionally high, allotment may be conducted via a lottery. In such cases, some applicants may not receive any shares even if their bid was valid.

How to Check IPO Allotment Status


Investors can check their allotment status online on the Registrar’s website or through stock exchanges. Here’s the process:

 

  • Visit the Registrar’s or exchange’s official site.



  • Enter details such as PAN, application number or DP/Client ID (for demat account holders).



  • Submit and view the allotment status.


 

These platforms provide real-time updates on the latest IPO allotment, helping investors know whether they've received shares.

Conclusion


Understanding how shares are distributed in IPOs empowers investors to participate in the latest IPO opportunities. Familiarity with the allotment process, SEBI regulations and factors affecting share allocation helps manage expectations and improve decision-making. By opening a Demat account or trading account, investors gain access to the IPO market, positioning themselves for potential gains.

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