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Uncover the mechanisms behind IPO share distribution and understand the factors that influence your chances of securing an allotment.
Initial Public Offerings (IPOs) offer retail investors a unique chance to own a stake in a company before its shares start trading publicly. However, due to high demand, especially in popular IPOs, not every applicant receives a share allotment. Understanding how the IPO allotment process works is essential for investors to grasp why they may or may not receive shares despite applying. This guide explores the detailed allotment process, investor categories, common myths, and how one can verify their allotment status.
IPO allotment is the process by which shares are distributed to investors who apply during a public issue. The allotment is handled by a registrar appointed by the company going public and is based on regulatory guidelines laid down by the Securities and Exchange Board of India (SEBI).
Registrars match bids to the total number of shares on offer and then allocate these shares based on specific rules, particularly when the IPO is oversubscribed.
Understanding the investor classification helps clarify how shares are divided:
Individuals applying for shares worth up to ₹2 lakhs.
35% of the total IPO size is usually reserved for this category.
Investors applying for shares worth more than ₹2 lakhs.
Typically includes High Net-Worth Individuals (HNIs).
15% of the issue is generally allocated here.
Includes entities like mutual funds, banks, and insurance companies.
Allotted around 50% of the IPO shares.
A sub-category within QIBs.
Offered shares before the IPO opens to stabilise demand and build investor confidence.
The actual allotment mechanism follows a structured path. The process is detailed in a step-by-step method below:
Investors submit bids through ASBA (Application Supported by Blocked Amount) or UPI-linked apps.
Funds remain blocked in the bank account until shares are allotted or refunded.
The IPO remains open for three working days.
Investors place bids within the price band announced.
If an IPO receives more applications than available shares, different methods are applied:
Retail (RII): Shares are allotted using a lottery system. Each investor receives one lot if demand allows.
NII/QIB: Proportional allotment based on the number of shares applied for.
The registrar finalises the allotment.
Unsuccessful applicants receive unblocking/refund of funds.
Successful investors get shares credited to their demat accounts.
Formula for Proportional Allotment (NII/QIB):
Allotted Shares = (Shares Applied ÷ Total Shares Applied in Category) × Shares Available for Category
The following factors can influence an IPO allotment:
Factors influencing IPO allotment primarily include the following:
Investor Category: IPOs usually reserve shares for different investor categories such as Retail Individual Investors (RII), Qualified Institutional Buyers (QIB), and Non-Institutional Investors (NII). Each category has a specific quota, for example, retail investors often get up to 35% of shares, while QIBs may receive up to 50%. The allotment process varies by category, with retail investors often allotted shares via a lottery system in oversubscribed IPOs.
Demand for the IPO: The level of subscription significantly affects allotment. If an IPO is undersubscribed, investors typically receive the full number of shares applied for. In oversubscribed IPOs, shares are allotted through a lottery or proportional basis, meaning investors may get fewer shares than applied for or none at all.
Application Size: Application size matters, especially in oversubscribed IPOs. Retail investors applying for shares worth up to ₹2 lakh generally fall under the retail quota and lottery system. Larger applications by NIIs may receive proportional allotment. Smaller applications sometimes have better chances in oversubscribed issues due to equitable distribution.
Cut-off Price Bidding: Bidding at the cut-off price (the final offer price) is crucial for maximizing allotment chances. Retail investors who bid at the cut-off price are eligible for allotment at any final price within the band, while bids below the cut-off price may be disqualified. Institutional investors must bid within the price band, and lower bids can reduce allotment chances.
Regulatory Guidelines: The allotment process follows SEBI and stock exchange regulations to ensure fairness and transparency. These rules govern how oversubscription is handled, minimum application sizes, and category-wise allotment, directly shaping the allotment outcomes.
Timing and Multiple Applications: Applying early can help avoid technical issues and increase chances of successful application processing. Using multiple Demat accounts (under different family members) can also improve chances by increasing the number of unique applications, especially in oversubscribed IPOs where allotment is lottery-based
The following are some of the common misconceptions about IPO allotment:
Misconception 1: Larger Applications Increase Allotment Chances
This is not true. For retail investors, the allotment is done via lottery. Applying for more than one lot doesn’t increase chances.
Misconception 2: Multiple Applications Improve Success
SEBI discourages multiple applications under the same PAN. Duplicate applications can be rejected.
Misconception 3: The Broker Influences Allotment
This is untrue. Brokers have no control over allotment. The process is centralised and managed by SEBI-approved registrars.
Investors can verify allotment through the following official channels:
Use your PAN or application number to check the status.
Example registrars: Link Intime, KFin Technologies.
Visit the IPO allotment section on the exchange’s website.
Investors receive confirmation via registered email or mobile.
Post allotment, shares appear in the investor’s demat account before listing day.
Understanding the IPO allotment process is crucial for every investor aiming to participate in primary markets. While the system is transparent and regulated, oversubscription often leads to partial or no allotment, especially in popular offerings. By being informed, investors can set realistic expectations and avoid common pitfalls.
This content is for informational 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.
Sources
SEBI – Investor Education
NSE India – IPO Process
BSE India – IPO Status
Groww Blog – IPO Allotment
Zerodha Varsity – IPO Allotment Explained
Moneycontrol IPO Section
The allotment is conducted by registrars following SEBI guidelines. It includes bid verification, category-wise allocation, and either a lottery (for RIIs) or proportional distribution (for others).
Applying at the cut-off price and early in the process can marginally help, but in oversubscribed IPOs, allotment for retail investors is mostly random.
You can, but they must be linked to different PANs. Multiple applications under the same PAN can be rejected.
Check the status on the registrar’s or stock exchange’s website using your application number, PAN, or demat details.
Your application amount is unblocked or refunded. You may choose to apply in future IPOs.
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Posted on 05 Jun
Geetanjali Lachke
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