When a company decides to become publicly traded and presents its shares to the public for the initial time via an Initial Public Offering (IPO), it opens up a fresh opportunity for investors to purchase shares and participate in the company`s growth. The IPO allotment process dictates who receives the shares and the manner in which they are allocated. The IPO allotment process may appear complicated, particularly for first-time investors, but understanding the process can help you navigate the system and increase your chances of getting allotted shares.
What Is IPO Allotment?IPO allotment refers to the process in which shares are allocated to applicants who have submitted requests for them. Given that IPOs are typically oversubscribed, not all applicants will receive shares. The distribution is determined by various factors, such as the total number of applications submitted, the quantity of shares on offer, and the specific allotment method employed.
What is Pre IPO investing and How to buy Pre IPO Shares
Step-by-Step Guide to the IPO Allotment Process
1. Filing of the IPO ApplicationInvestors apply for IPO shares through brokerages or various online platforms.
2. IPO Subscription Period- The IPO is open for a specific period (usually 3-7 days), during which investors can submit their applications.
- Retail investors can apply for shares in lots, typically ranging from 10 to 100 shares per lot, depending on the offering.
3. Receiving Applications and Payment- Investors can submit their applications through either the ASBA (Application Supported by Blocked Amount) method or other authorized methods.
- In ASBA, the funds for the application are held in the investor`s bank account, and the amount is not deducted unless the IPO allocation is granted.
4. Basis of Allotment Calculation- After the subscription period closes, the company establishes the criteria for allotment. If the IPO experiences oversubscription (where demand exceeds supply), the allotment is conducted on a pro-rata basis.
- For example, if there are more applications than available shares, the company will allocate shares based on the ratio of application to total demand.
In case of oversubscription:- Retail Investors: If the retail category is oversubscribed, the shares will be allotted on a proportionate basis.
- Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs): Generally, Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) are allocated shares in a proportional manner; however, these groups may be granted increased priority in accordance with regulatory guidelines.
5. Finalizing the Allotment- The Registrar to the Issue compiles a conclusive list of IPO allotments derived from the allotment calculation and confirms it with the stock exchange.
- The registrar then shares the list of allotted applicants, specifying the number of shares allotted to each investor.
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6. Refund Process for Non-Allotted Investors- Investors who do not obtain any allotment or receive only a partial allotment will have their blocked funds returned to their bank accounts.
- Refunds are handled by the Registrar and generally take place within 5 to 10 days from the date of allotment.
7. Share Credit to Demat Accounts- Shares of successful applicants are credited to their Demat accounts after the allotment process.
- This usually happens within 1-2 days of the allotment.
8. Listing of Shares on the Stock Exchange- The company`s shares are listed on the Stock Exchange (BSE, NSE, etc.), and trading begins on the listing date.
- The listing date is typically a few days after the allotment process is complete (usually 6-10 days).
Key Points in IPO Allotment: - Pro-rata Allotment: When the IPO is oversubscribed, shares are allotted proportionally among the applicants according to the level of demand.
- Retail vs. Institutional: Retail investors frequently obtain lesser allotments in comparison to institutional investors, depending upon the subscription level and category.
- Refunds for Non-Allotment: If an investor fails to receive any shares, the application amount will be refunded; however, in the ASBA process, the amount is only blocked and not debited until allotment.
- Allotment Status: Investors can check their allotment status on the Registrar`s website by entering the application number or PAN.
Considerations for Investors:- Oversubscription Impact: In oversubscribed IPOs, retail investors face a low probability of receiving their full allotment, especially in hot IPOs.
- Partial Allotment: If partial allotment occurs, investors might receive a fraction of the shares they applied for.
- Waiting for Listing: After allotment, investors must await the listing date to determine whether the stock price increases or decreases.
ConclusionThe process of IPO allotment is a crucial phase in the journey of an Initial Public Offering. Although not every applicant will achieve success, gaining insight into the workings of this process can assist you in making more informed decisions. By monitoring subscription levels, utilizing ASBA for applications, and comprehending the different allotment methods, you can enhance your likelihood of obtaining shares.
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Frequently Asked Questions (FAQs)What is IPO allotment?IPO allotment refers to the process of allocating shares to investors who have submitted applications for an Initial Public Offering (IPO). This allocation is determined by the principles of demand and supply, and an investor`s chance of obtaining shares is influenced by the total number of applications received and the quantity of shares available. How is IPO allotment decided?Allotment is typically conducted through two approaches: proportional allotment and lottery-based allotment. In instances of oversubscription, shares are distributed on a proportional basis, whereas in other situations, allotment may occur randomly (similar to a lottery). What happens if I don`t get an IPO allotment?If you do not receive an allotment, the amount of your application will be refunded. In case of a partial allotment, you will obtain the shares that have been allotted to you, and any excess funds will be returned. Can I apply for more than one IPO?Yes, you can apply for multiple IPOs, but it`s important to follow the rules regarding multiple applications to avoid rejection, such as applying through different demat accounts or PAN numbers. When is the IPO allotment announced?The IPO allotment status is usually announced within 6-7 days after the IPO`s subscription closes. Investors can check the status online via the registrar`s website or through their brokers.
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
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Posted on: 11-Jul-2025 | Posted by: NIFM |
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