IPO Allotment Guidelines: Rules, Process and Basis of Allotment

IPO allotment refers to the process by which shares are distributed among investors who apply during the subscription period. The allotment of shares in an IPO is governed by SEBI (Securities and Exchange Board of India) regulations and applicable issue procedures to ensure fairness and transparency.

Retail Individual Investors (RII)

Investors applying for shares with an application value of up to ₹2 lakh. In an oversubscribed retail category, eligible applicants may receive the minimum bid lot through a draw of lots, subject to the applicable allotment rules.

Non-Institutional Investors (NII)

Investors whose application value exceeds the retail limit. The NII category includes applicable sub-categories based on application size, with allotment made according to the proportionate allotment rules prescribed for the category.

Qualified Institutional Buyers (QIBs)

Institutional investors such as mutual funds, insurance companies and other eligible institutions. Allotment is generally made according to the applicable category-wise allocation and proportionate allotment rules.

• For a book-built public issue, not less than 35% of the net offer to the public is generally available for allocation to Retail Individual Investors, subject to applicable regulations.

• The minimum bid lot specifies the minimum number of shares that can be applied for in the retail category. Allotment is made according to the applicable category-wise allotment rules.

• If the number of valid retail applications exceeds the number of applicants who can receive the minimum bid lot, eligible applicants for the minimum lot are determined through a draw of lots, in accordance with the applicable allotment rules.

• For applicants who do not receive an allotment, the blocked application amount is unblocked or refunded, as applicable, through the prescribed process.

The IPO allotment procedure varies by investor category and the number of valid applications received:

• Draw of Lots: In the retail category, when the number of valid applicants exceeds the number of applicants who can receive the minimum bid lot, the successful applicants for the minimum lot are determined through a computerised draw of lots.

• Proportionate Method: Allotment in the NII category is generally made on a proportionate basis in accordance with the applicable category-wise rules. QIB allotment is also generally made proportionately, subject to the applicable allocation provisions.
   

The basis of allotment is determined according to the investor category, the number of valid applications, the shares available for allocation, and the applicable SEBI regulations.

Investors apply for IPO shares through ASBA (Application Supported by Blocked Amount), including UPI-based applications where applicable, through their banks or other permitted intermediaries.

Closure

Once the subscription period ends, the post-issue process begins, including reconciliation and verification of application and bid details across the retail, non-institutional and qualified institutional investor categories.

Finalisation

The basis of allotment is prepared and finalised in consultation with the designated stock exchange. Shares are allotted according to the applicable category-wise allotment rules, which may involve a draw of lots for eligible retail applicants when the number of valid applications exceeds the available minimum-lot allotments.

Allotment

Shares allotted to successful applicants are credited to their demat accounts as per the applicable post-issue timeline, generally by T+2, with listing scheduled for T+3.

Refunds/Unblocking

For applications that do not receive an allotment, or receive only a partial allotment, the blocked application amount is released or unblocked as applicable, generally by T+2.

Listing

On the scheduled listing date, the company's shares are admitted for trading on the stock exchange, subject to the applicable listing requirements.

The overall IPO allotment timeline, from issue closure to listing, typically follows this sequence:

• Issue Closure: The subscription period ends on the announced closing date.

• Basis of Allotment Finalisation: Typically finalised within 1 working day of issue closure (T+1).

• Allotment and Demat Credit: Shares are credited to successful applicants' demat accounts, typically by T+2.

• Refunds/Unblocking: For unsuccessful or partially successful applicants, funds are refunded or unblocked, typically by T+2.

• Listing: Shares are listed and begin trading on the stock exchange, typically by T+3.
   

This T+3 timeline reflects the applicable post-issue process for listing public issues under SEBI's prescribed framework.

Several factors influence how shares are allotted in an IPO:

• Subscription Levels: The number of valid applications and shares available in each category determine how allotment is carried out. In an oversubscribed retail category, a draw of lots may be used when the number of eligible applicants exceeds the number of available minimum-lot allotments.

• Category Quotas: Each investor category has a specified portion of the issue available for allocation, subject to applicable SEBI regulations and issue-specific provisions. The category-wise allocation determines the shares available for allotment to applicants within that category.

• Lot Size: The minimum bid lot specifies the number of shares that can be applied for as a lot. In the retail category, the applicable allotment rules determine how the minimum lot and any remaining shares are allocated when the category is oversubscribed.

• Application Accuracy: Applications may be rejected if required details, such as PAN, demat account or bank information, are incorrect or do not match the relevant records, or if other applicable application requirements are not met.

Suppose an IPO's retail portion is subscribed 15 times. If the number of valid retail applications exceeds the number of applicants who can receive the minimum bid lot, the eligible applicants receiving the minimum lot are determined through a computerised draw of lots. Applying for a larger number of shares does not guarantee a higher allotment in such a situation. Any remaining shares, where applicable, are allotted according to the prescribed basis of allotment.

IPO allotment may appear random, particularly when an issue is oversubscribed. However, the process follows defined regulatory requirements and category-wise allotment rules to promote fairness and transparency. Understanding the basis of allotment, category-wise allocation, and the applicable timelines can help investors understand how IPO applications are processed and how shares are allotted.