What is IPO Lot Size?

When companies go public through an Initial Public Offering (IPO), investors are invited to subscribe to shares before the company is listed on the stock exchange. One of the key terms investors encounter during this process is IPO lot size. Understanding this concept is crucial to making informed subscription decisions and ensuring compliance with the stock market’s regulatory framework.

IPO lot size refers to the minimum number of shares an investor can apply for in an IPO. When a company issues shares, SEBI and the company jointly define a lot size to:

• Standardise applications from retail and institutional investors.
  

• Avoid irregular fractional share allotments.
  

• Ensure that investors apply within defined limits.
  

For example:
If an IPO lot size is 50 shares and the share price is ₹100 per share, then one lot costs ₹5,000. Investors can apply for one or multiple lots, but cannot apply for less than one lot.

1. Minimum Lot Size: This is the smallest number of shares an investor can apply for in an IPO. Investors must bid in multiples of this size; buying fewer shares isn't permitted. It ensures that only serious bidders participate.

2. Maximum Lot Size: This sets the upper limit on how many shares an individual investor can apply for, preventing excessive holdings by any one investor and ensuring broader distribution among participants.

• Share Price: Higher-priced shares often result in larger lot sizes so that the investment entry point remains practical for investors.
  

• Total Shares Offered: The total number of shares issued influences the lot size, balancing between funding needs and investor accessibility.
  

• Regulatory Guidelines: Companies must comply with regulatory norms that may specify minimum thresholds or provide guidance on lot sizes.
  

• Market Conditions: Current demand, liquidity indicators, and overall market sentiment inform the decision on an appropriate lot size.
  

• Investor Demand: Anticipated participation levels help issuers choose a lot size that attracts sufficient interest without oversupply. 

Formula :

Total number of lots = Total shares offered ÷ Minimum lot size

Understanding IPO lot size is important for three main reasons:

• Determines Minimum Investment:
  

  • Investors need to calculate lot cost to check affordability.
    

• Regulates Retail Participation:
  

  • SEBI defines a cap for retail investors to ensure equal opportunity.
    

• Impacts Allotment Chances:
  

  • Applying for more lots increases the probability of allotment in oversubscribed IPOs.
    

By knowing the lot size, investors can plan their IPO applications effectively.

SEBI provides specific guidelines for the determination of IPO lot size:

• Retail investors can apply for shares worth up to ₹2,00,000.
  

• High net-worth investors (HNIs) apply for more than ₹2,00,000 and hence multiple lots.
  

• Lot sizes vary based on the IPO price band and share face value.
  

• The issuer company, along with exchanges, finalises the lot size before the IPO opens.
  

These rules maintain market fairness and prevent small fractional allocations.

Here’s how IPO lot size determines investment:

• IPO Price per Share: ₹150
  

• IPO Lot Size: 100 shares
  

• Cost per Lot: ₹150 × 100 = ₹15,000
  

If a retail investor wants to invest ₹45,000, they would apply for 3 lots of 100 shares each.

Companies and exchanges decide IPO lot size based on multiple factors:

• Share Price:
  

  • Higher share prices result in smaller lot sizes to keep retail participation affordable.
    

• Retail Investor Targeting:
  

  • Companies aim to encourage broad participation by adjusting lot sizes.
    

• SEBI and Exchange Guidelines:
  

  • Compliance ensures fair allotment and market discipline.
    

By considering these factors, issuers optimise IPO participation and compliance.

The lot size influences how investors approach IPO subscriptions:

• Retail Investors:
  

  • Typically apply for 1 to 3 lots depending on funds and allotment probability.
    

• HNIs and Institutions:
  

  • Apply for multiple lots to increase allocation chances.
    

• Allotment Strategy:
  

  • Applying for the minimum lot ensures eligibility but doesn’t guarantee allotment.
    

Investors must balance capital availability and IPO popularity when choosing lots.

IPO lot size is a critical component of IPO participation. It defines the minimum number of shares, helps calculate the investment required, and ensures fair distribution of shares among different categories of investors. By understanding lot size and SEBI regulations, investors can plan subscriptions effectively and improve their chances of allocation.

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.