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.
IPO allotment refers to the process of distributing shares among investors who apply during a company’s Initial Public Offering. Since demand often exceeds supply, understanding how this distribution works explains why not all applicants receive shares in an IPO.
Participating in an Initial Public Offering (IPO) is one of the most common ways for investors to enter the equity market. For companies, it serves as a way to raise capital and list their shares on a public exchange, while for investors it provides a chance to subscribe to shares before they are traded in the secondary market.
However, many retail investors are not aware of how shares are actually distributed when an IPO takes place. Understanding the IPO allotment process clears these doubts and helps investors know what determines their chances of receiving shares.
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.
IPO allotment is governed by SEBI regulations to maintain fairness and transparency. While the framework applies to all investors, specific rules differ slightly across categories.
Retail Category (RIIs):
If oversubscribed, shares are allotted through a computerised lottery. This ensures fairness and provides every eligible applicant with a chance to receive at least one lot, wherever possible.
Pro-rata Basis (Other Categories):
High Net-worth Individuals (HNIs) and Qualified Institutional Buyers (QIBs) usually receive allotment proportionately, depending on the size of their applications.
Minimum Lot Allotment:
Each eligible retail investor is considered for at least one lot, subject to availability.
Same PAN Rule:
Only one valid application per PAN is accepted in the retail category. Multiple applications with the same PAN may lead to rejection.
Refunds and Notifications:
Refunds for unallotted shares are processed promptly (subject to registrar and bank processing timelines), and allotment status is shared via SMS/email or can be checked online.
These rules collectively ensure that the IPO allotment process remains transparent, efficient, and equitable 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:
Application through ASBA
Investors apply using the ASBA (Application Supported by Blocked Amount) facility, where the bid amount is blocked in their bank account until the allotment process is completed.
Bidding and Book Building
In book-built issues, investors place bids within the specified price band. Once bidding closes, the cut-off price is determined based on overall demand.
Oversubscription and Lottery Method
In case of oversubscription, shares in the Retail Individual Investor (RII) category are allotted via a lottery system, while other categories follow proportionate allocation.
Finalisation of Basis of Allotment
The registrar, in coordination with stock exchanges, prepares the Basis of Allotment (BoA) document, which outlines how shares will be distributed among investors.
Credit of Shares and Refund
Allotted shares are credited directly to the investor’s Demat account. If no shares are allotted, the blocked amount is unblocked or refunded to the bank account.
By following these structured steps, the IPO allotment process ensures fairness, transparency, and timely allocation of securities to investors.
The chances of receiving shares in an IPO depend on several key factors. These variables influence how applications are prioritised and how shares are finally distributed.
Oversubscription:
If the demand in any category exceeds the available shares, allotment is done proportionately (for NIIs and QIBs) or through a lottery system (for RIIs).
Lot Size:
SEBI fixes a minimum lot size for every IPO. Investors must apply in multiples of this lot, which directly impacts eligibility and allotment chances.
Proportionate Allocation:
In categories like NIIs and QIBs, allocation is made in proportion to the number of shares applied for, unlike the lottery-based retail system.
Cut-off Price Selection:
Retail investors who apply at the cut-off price are eligible for allotment at the final issue price, whereas those bidding below the cut-off are not considered.
Together, these factors determine how IPO shares are distributed across different categories of investors.
Once you apply for an IPO, the next step is to find out whether you have received any shares. The allotment status is generally made available a few days after the IPO closes and can be easily checked online or through your bank account. Knowing how to check this status ensures that you stay updated and take timely action after the IPO.
Registrar’s Website:
Visit the IPO registrar’s website (e.g., KFintech or Link Intime). Enter your PAN, application number, or DP ID to check your allotment status.
Stock Exchange Portal:
Visit the official NSE (nseindia.com) or BSE (bseindia.com/investors) IPO status page and enter the required details.
Bank Account:
If shares are allotted, the blocked ASBA amount will be debited. If not, the amount will be unblocked or refunded.
Demat Account:
Allotted shares will be visible in your Demat account a few days before the IPO listing date.
Understanding the key terms associated with IPO allotment helps investors interpret the process more clearly. These concepts explain how applications are processed, how prices are decided, and what influences the outcome of allotment.
ASBA:
An application method where your bid amount is blocked in your bank account until the allotment process is finalised.
Basis of Allotment:
An official document that explains how shares are distributed, including oversubscription ratios and successful applicants.
Cut-off Price:
The final issue price at which shares are allotted to investors, determined after analysing demand across price levels.
Lot Size:
The minimum number of shares you must apply for in an IPO. Applications must be made in multiples of this lot size.
Grey Market Premium (GMP):
The unofficial premium at which IPO shares are traded before listing. This is not regulated by SEBI and should only be seen as an indicator, not an investment guide.
In India, IPO shares are not distributed equally among all applicants. Instead, SEBI has created specific investor categories, each with its own reservation quota. Understanding these categories helps investors know where they fit and what their chances of allotment might be.
Qualified Institutional Buyers (QIBs)
Includes institutional investors such as mutual funds, foreign portfolio investors (FPIs), insurance companies, and pension funds.
Typically allotted 50% of the IPO shares.
Non-Institutional Investors (NIIs)
Includes High Net-Worth Individuals (HNIs) and corporate bodies.
Investors applying for shares above ₹2 Lakhs fall under this category.
Usually allotted 15% of the total issue.
Retail Individual Investors (RIIs)
Individual investors applying for shares worth up to ₹2 Lakhs.
SEBI mandates that 35% of the IPO shares are reserved for retail investors.
Anchor Investors
A special sub-category of QIBs.
Invited to invest one day before the IPO opens to the public.
Their early participation often boosts credibility and builds investor confidence.
By dividing applicants into these categories, IPOs ensure that participation is balanced and that investors across different segments have fair access to shares.
Small and Medium Enterprise (SME) IPOs are conducted on dedicated SME platforms of stock exchanges. These offerings are meant to help smaller companies raise funds, while allowing investors to subscribe to shares listed on dedicated SME platforms. Although the allotment process follows the same principles as mainboard IPOs, there are additional norms that apply.
Reservation for market makers
Smaller minimum application sizes
Fixed price or book-built method
While the core allotment framework remains the same, SME IPOs cater to a niche investor segment and are regulated under stricter norms to protect investors and ensure market stability.
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.
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.