What is an IPO Allotment? And How It Works in India

The IPO allotment process involves allocating shares to investors depending on the demand, category, and availability. Understanding how IPO allotment works is important for investors before they make any investments. This article explains what is IPO Allotment, how the shares are allocated, and a lot more.  

IPO Allotment Rules

To make sure there is fair and transparent distribution of shares, the IPO allotment process follows specific rules and guidelines. The following are the IPO allotment rules. 

• The allotment process is conducted by the registrar in coordination with the designated stock exchange. 

• The registrar publishes the basis of an allotment document, detailing the final allocation of shares. 

• The allocation depends on the number of shares offered and the total number of bids received in each investor category, like retail, non-institutional investors (NII), and qualified institutional buyers (QIB).  

• The rules can be different based on the investor type. Each category has a predefined share quota and allotment method.  

• As an investor, you need to make sure all the information entered is correct. If there is any mistake in the Demat account details or if there is a duplicate PAN, then your application might get rejected.  

• If the applications are submitted at or above the cutoff price, then they are eligible for allotment.  

• Unsubscribed shares in the Qualified Institutional Buyer (QIB) category cannot be reallocated to other categories. 

• If you have unsubscribed from one category (excluding QIB), then it may get adjusted with oversubscription in another, subject to approval. 

Procedure for Allotment of Shares

The process of IPO shares allocation depends on investor category, subscription level, and SEBI guidelines. Here’s how the IPO shares are allocated:  

Retail Individual Investors (RII) 

Retail investors are individual investors who apply for shares worth up to ₹2 lakh. 

If the IPO is oversubscribed, allotment is done through a random selection (lottery) process, giving each applicant an equal chance. In cases where the IPO is fully subscribed or undersubscribed, applicants usually receive the full number of shares they applied for. 

Non-Institutional Investors (NII) 

NIIs are high-value individual investors who apply for more than ₹2 lakh worth of shares. 

Under this category, shares are proportionately proportionate. For example, if the NII portion is oversubscribed 10 times, each investor receives 1/10 of the shares they applied for. 

Qualified Institutional Buyers (QIB) 

QIBs are large institutional investors such as mutual funds, banks, and insurance companies. 

In this category, shares are allotted proportionately after the price discovery process. QIBs cannot withdraw their bids once placed, and allotment is completed before the shares are listed. 

Anchor Investors 

Anchor investors are a subset of QIBs, typically large institutional investors who invest before the IPO opens to the public. 

Up to 60% of the QIB portion can be allocated to anchor investors, with one-third reserved for domestic mutual funds. The issuer, along with the lead manager, selects anchor investors and finalises their allotment. The registrar maintains records of these allocations. 

Employees 

This category is reserved for employees of the issuing company. 

If oversubscribed, shares are allotted on a proportionate basis to ensure fair distribution. The value of shares allotted to each employee should not exceed ₹2,00,000. However, if the reserved portion is underutilised, additional shares may be allocated up to ₹5,00,000, depending on availability. 

IPO Allotment Status Check

• Investors can check their IPO allotment status after the bidding process closes. 

• Allotment status can be verified online through stock exchange websites or the IPO registrar website. 

• Basic details required for checking the status include a PAN card, application number, or Demat account number. 

• The status provides information on whether shares have been allotted and their quantity. 

• Updates are also communicated via email and SMS by depositories and exchanges. 

Reason for No Allotment of Shares in an IPO

The key reasons for no allotment of shares in an IPO are: 

• Oversubscription of IPOs: If too many people apply for an IPO, it is called oversubscription. In such cases, the chances of getting shares are reduced. For retail investors, the allotment is usually done through random selection.  

• Multiple Applications with Same PAN: If someone is submitting multiple IPO applications using different Demat accounts linked to the same PAN, then the application gets rejected.  

• Application Form Errors: If there are mistakes in PAN, wrong bank account details, or incomplete forms, signature mismatch or important information is missing, then the application gets disqualified.  

Conclusion

IPO allotment determines how shares are distributed among investors, post-IPO bidding. The process is based on investor categories, demand, and regulatory norms. Accurate application details and compliance with guidelines are important for allotment. While oversubscription and mistakes in application can reduce allocation possibilities, transparent systems ensure fairness. Understanding this process helps investors participate more confidently in evolving capital markets.