What is IPO Allotment Process

IPO allotment is the mechanism through which shares of a company going public are distributed among investors who applied during the Initial Public Offering. It ensures fair allocation based on demand, investor category, and SEBI regulations, helping investors understand their chances of receiving shares.

An Initial Public Offering (IPO) is a major milestone for companies seeking to raise capital from the public. For investors, it allows investors to participate in a company’s public listing from the beginning. Since demand often exceeds supply, the allotment process plays a crucial role in deciding how many shares each investor receives. By following defined regulatory guidelines, the process ensures transparency and fairness for all investor categories.

The IPO allotment process determines how shares are distributed among investors once the subscription window closes. It becomes especially important in cases of oversubscription, where the number of applications is higher than the shares available. In such cases, the basis of allotment ensures a fair and transparent method of allocation while complying with SEBI’s guidelines.

IPO allotment is the process through which shares offered in an IPO are distributed among applicants. When an IPO receives more applications than the shares available (oversubscription), not all applicants may receive shares. The allocation is governed by SEBI regulations and follows a defined process to ensure fairness.

Allotment is carried out by the Registrar to the IPO, in consultation with the company and under SEBI’s oversight. The process ensures transparency and equal opportunity for all eligible investors.

An IPO allows companies to raise capital while giving investors a chance to participate in their growth journey. To ensure fair participation, SEBI divides IPO applicants into specific categories, each with its own quota and allotment rules. Knowing these categories helps investors understand their position and chances of receiving shares.

Retail Individual Investors (RIIs):

Retail investors are the largest group of IPO participants, typically comprising individual traders and small investors. Their applications are capped at ₹2 Lakh, and they benefit from a significant reserved quota to encourage wider public participation.

• Can apply for up to ₹2 Lakh worth of shares.
  

• Reserved 35% of the total offer.
  

• Retail investors are usually allotted shares via a lottery system in case of oversubscription.
  

Non-Institutional Investors (NIIs):

This category covers High Net-Worth Individuals (HNIs) and corporates who invest larger sums. Their allocation process differs from retail investors and is based on proportionate distribution.

• High Net-Worth Individuals and corporates.
  

• Apply for more than ₹2 Lakh.
  

• Reserved 15% of the total offer.
  

• Allotment is proportional.
  

Qualified Institutional Buyers (QIBs):

Institutional investors play a vital role in stabilising IPO demand and are often given the largest allocation share. Their participation builds market confidence in the IPO.

• Includes mutual funds, banks, insurance companies, etc.
  

• Reserved 50% of the total issue.
  

• Allotment based on proportion of demand.
  

Employees and Shareholders:

In some IPOs, companies offer a special quota for employees and existing shareholders. This encourages loyalty and allows them to benefit directly from the company’s growth.

• Specific quota reserved in some IPOs.
  

• Allotment within respective reservation limits.

Such reservations vary by company and are disclosed in the prospectus.

IPO allotment depends on several factors that determine how shares are distributed among applicants. These factors vary across investor categories and influence the chances of receiving shares.

Subscription Level

• Undersubscription: All applicants receive full allotment.

• Oversubscription: Allotment done via lottery or proportionately, depending on category.

Number of Lots Applied

• For RIIs, allotment is done in lots.

• More lots increase allotment probability (subject to cut-off and category).

Cut-off Price Selection

• Retail applicants selecting “cut-off price” are eligible for allotment at the final issue price.

• Bidding at a lower price than cut-off may lead to no allotment.

Lot Size and Bid Multiples

• Investors must apply in multiples of the minimum lot size.

• Example: If lot size = 30 shares, application should be in 30, 60, 90, etc.

The IPO allotment process follows a defined sequence to ensure transparency and fairness. From application submission to final listing on the exchange, each step is monitored by the registrar under SEBI guidelines. Investors benefit from understanding this sequence as it helps set clear expectations.

Step 1: Application and Bidding 

Investors place bids using ASBA (Applications Supported by Blocked Amount) via their bank or broker. Funds remain blocked until allotment.

Step 2: Bidding Window Closes

At the end of the 3-day IPO window, bidding stops. The registrar compiles all applications.

Step 3: Basis of Allotment Finalised

The registrar prepares a 'Basis of Allotment' (BoA) document outlining how shares will be distributed.

Step 4: Share Allocation

Based on the BoA:

• RIIs may be allotted via lottery.

• NIIs and QIBs are allotted proportionately.

Step 5: Credit of Shares

Allotted shares are credited to the investor's demat account. Refunds are processed for unallotted shares.

Step 6: Listing on Exchange

Shares begin trading on the scheduled listing day. Investors can then sell or hold their shares.

The basis of allotment defines the method used to fairly distribute IPO shares among applicants, especially in cases of oversubscription. It ensures transparency and equal opportunity by using ratios or lotteries depending on investor categories.

Formula: Oversubscription Ratio

Oversubscription Ratio = Total Number of Shares Applied / Total Number of Shares Offered

Example Scenario:

• Shares offered to retail: 1,00,000

• Applications received: 5,00,000

• Oversubscription: 5x

Registrar uses a lottery mechanism to randomly allocate shares to 1 in every 5 applicants.

For NIIs:

If 30,000 shares are reserved and demand is for 60,000, each eligible applicant receives 50% of the shares they applied for.

Once the basis of allotment is finalised, investors can check whether they have received shares. The status is usually made available online by the registrar, stock exchanges, and sometimes directly through brokers.

Through Registrar Website

• Go to the IPO registrar’s website.

• Select IPO name.

• Enter PAN, application number, or DP ID.

Through BSE or NSE Website

• Visit: bseindia.com/investors or nseindia.com

• Follow the IPO status link.

Typical Timeline

• Allotment status is announced 5–7 days after the IPO closes.

• Shares are credited before the listing date.

After the IPO allotment process is complete,certain developments take place regarding demat credit, refunds, and listing. These highlight how allotments and settlements are finalised.

1. Demat Credit

Shares are credited to the investor’s demat account on or before the listing date.

2. Refund Status

If no allotment occurs, blocked funds are automatically unblocked or refunded.

3. Listing Day

Shares begin trading on the listing day, and the market price may differ from the IPO price.

Completing these steps ensures that investors remain updated, avoid confusion, and make informed decisions after allotment.

Depending on investor demand, IPO allotment can result in different outcomes. Understanding these common scenarios helps investors set realistic expectations about receiving shares.

Undersubscribed IPO

• All valid applicants generally receive full allotment.
  

• Remaining shares, if any, may be reallocated to other investor categories.
  

Oversubscribed IPO

• For RIIs, a lottery system is used to determine allotment.
  

• For NIIs and QIBs, shares are allotted proportionately.
  

Partial Allotment

• Happens when applications exceed available shares.
  

• Investors receive fewer shares than they applied for.

Certain practices are commonly observed during the IPO application process to minimise errors.

Points to Note:

• Application Timing – Applications submitted early face lower chances of technical glitches.
  

• Payment Modes – UPI mandates require authorisation within 24 hours, while ASBA is used for smoother processing.
  

• Information Accuracy – Errors in PAN, bank details, or DP ID may lead to rejection.

The IPO allotment process plays a key role in ensuring fair and transparent distribution of shares. Whether you’re a retail or institutional investor, understanding this process helps set realistic expectations and interpret the outcome of your application. While oversubscription often leads to partial or no allotment for retail investors, proper bidding strategies and accurate application details can improve the odds.

Being well-informed about timelines, refund procedures, and how to check allotment status enhances the IPO experience and prepares you for the listing phase.

This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.