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Explore how shares are distributed during an Initial Public Offering (IPO) in India, covering investor categories, allotment methods, and how to check IPO allotment status.
Participating in an Initial Public Offering (IPO) is one of the most popular ways for investors to enter the equity market. For companies, it is a route to raise capital and gain market visibility. For investors, IPOs offer a chance to be part of a company's early journey. However, many retail investors are unaware of how IPO shares are actually allocated. This article explains the complete share allotment process, helping new and aspiring investors understand how shares are distributed and what determines their chances of receiving an allotment.
An IPO, or Initial Public Offering, is a process where a private company offers its shares to the public for the first time. This is done to raise capital for various business needs such as expansion, product development, or debt repayment. Post-IPO, the company's shares become available for trading on public stock exchanges.
Retail Category (RII):
If oversubscribed, allotment is done through a computerized draw (lottery system), ensuring at least one lot per eligible applicant if possible.
Pro-rata Basis (for other categories):
High Net-worth Individuals (HNIs) and Qualified Institutional Buyers (QIBs) usually receive shares on a proportionate basis depending on the number of shares applied for.
Minimum Lot Allotment:
Each eligible retail investor is considered for at least one lot, subject to availability.
Same PAN Rule:
Only one application per PAN in the retail category is considered valid; multiple applications may lead to rejection.
Refunds and Notifications:
Refunds for unallotted shares are processed, and allotment status is notified via email/SMS or can be checked online.
These rules help ensure a fair and efficient IPO allotment process for all types of investors.
The IPO allotment process involves several steps from the close of bidding to final credit of shares in demat accounts. Here's how it works:
Investors apply through the Application Supported by Blocked Amount (ASBA) facility, which blocks the bid amount in their bank account until the shares are allotted.
In a book-built issue, investors can bid within a price band. Once bidding closes, the cut-off price is determined based on demand.
If the IPO is oversubscribed, especially in the retail category, shares are allocated using a lottery system. This ensures a fair and transparent process.
This document details how shares are distributed among applicants. It is approved by stock exchanges and uploaded by the registrar.
Allotted shares are credited to the demat account. If an investor doesn’t receive any shares, the blocked amount is released by the bank.
Multiple variables affect how IPO shares are distributed among applicants:
If the demand in any category exceeds the number of shares available, allotment is based on a proportionate or lottery system.
SEBI sets a minimum lot size for IPO applications. Investors must apply in multiples of this lot size.
In NII and QIB categories, allocation is generally on a proportionate basis, unlike the lottery system followed for retail investors.
Retail investors often apply at the cut-off price, which improves their chances of allotment, especially in oversubscribed issues.
After applying, you can track whether you have received shares in the IPO using multiple channels:
Visit the official website of the registrar (e.g., KFintech or Link Intime). Provide your PAN, application number or DP ID to check your allotment status.
Use the BSE or NSE portal, select the IPO, and fill in required details to view the allotment.
The ASBA amount will be unblocked or debited based on the allotment. A refund or debit entry in your bank statement is a good indicator.
If allotted, shares will be visible in your demat account before the listing date.
Understanding key terms helps demystify the IPO allotment mechanism:
An application mechanism where your bid amount is blocked in your bank account until finalisation of allotment.
A document that outlines the rules used for allocating shares, including total applications received, oversubscription ratios and number of successful applicants.
The price at which shares are finally allotted to investors. It is determined after analysing the demand across different price levels.
The smallest number of shares that can be applied for. IPOs usually require applications in multiples of this number.
The unofficial premium at which IPO shares trade before listing. Note that GMP is not regulated and should not influence investment decisions.
Different categories of investors participate in an IPO, and regulatory bodies mandate specific allocations for each category:
This group includes institutional investors such as mutual funds, foreign portfolio investors, insurance companies, and pension funds. QIBs are typically allotted 50% of the IPO shares.
Also known as High Net-Worth Individuals (HNIs), NIIs include corporate bodies and individuals applying for shares above ₹2 Lakhs. They are typically allotted 15% of the shares.
Retail investors are individuals applying for shares up to ₹2 Lakhs. SEBI mandates that 35% of the IPO shares be reserved for this category.
A sub-category of QIBs, anchor investors are invited to invest a day before the IPO opens to the public. Their participation adds credibility and often sets the tone for the rest of the issue.
SME IPOs are conducted on SME platforms of stock exchanges and have different norms:
Reservation for market makers
Smaller minimum application size
Fixed price or book-built method
The process of allotment is similar, but volumes and investor categories differ.
Understanding the IPO allotment process is essential for every aspiring investor. While demand often exceeds supply in popular IPOs, knowing the rules and mechanisms behind allotment can help manage expectations and improve decision-making. The process is regulated and transparent, giving all categories of investors a fair opportunity.
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
Securities and Exchange Board of India (SEBI): https://www.sebi.gov.in/
National Stock Exchange (NSE): https://www.nseindia.com/
Bombay Stock Exchange (BSE): https://www.bseindia.com/
KFin Technologies: https://ris.kfintech.com/ipostatus/
Link Intime India: https://linkintime.co.in/initial_offer/
FAQs
It is the final price at which shares are allotted to investors, determined after analysing all bids.
Applying at the cut-off price and ensuring only one application per PAN can increase chances, especially in oversubscribed IPOs.
Your ASBA amount will be unblocked or refunded by the bank.
Yes, you can apply in multiple IPOs as long as you meet eligibility and funding requirements.
The core allotment mechanism remains similar, though SME IPOs have different categories and lot sizes.
