IPO Allotment Process: How Shares Are Allocated

Ever wondered how IPO shares are allotted when thousands of investors apply? Why do some people get shares while others don't? Let's demystify the IPO allotment process and understand exactly how the system works.

What is IPO Allotment?

IPO allotment is the process by which shares are distributed to investors who have applied for an Initial Public Offering. Since demand often exceeds supply, not everyone who applies gets the shares they bid for. The allotment process is governed by SEBI (Securities and Exchange Board of India) guidelines to ensure fairness and transparency.

Category-wise Reservation

Before understanding allotment, you must know that IPO shares are divided into different categories:

1. Retail Individual Investors (RII)

- Investment limit: Up to ₹2,00,000 - Reservation: Typically 35% of total issue size - Allotment: Minimum 1 lot guaranteed if undersubscribed, lottery-based if oversubscribed

2. Non-Institutional Investors (NII/HNI)

- Investment: Above ₹2,00,000 up to ₹10,00,000 (Small HNI) - Also includes investments above ₹10,00,000 (Big HNI) - Reservation: Typically 15% of total issue size - Allotment: Proportionate basis

3. Qualified Institutional Buyers (QIB)

- Includes: Mutual funds, insurance companies, FIIs, banks - Reservation: Typically 50% of total issue size - Allotment: Discretionary by the company

4. Anchor Investors

- Subset of QIB quota - Invest 1 day before IPO opens - Minimum ticket size: ₹10 crore - Get allotment at a fixed price before price discovery

Understanding Subscription Levels

Undersubscribed: Applications received < Shares offered - Everyone gets full allotment Fully Subscribed: Applications = Shares offered - Everyone gets full allotment Oversubscribed: Applications > Shares offered - Allotment through lottery (retail) or proportionate (HNI/NII) Example: If retail category is subscribed 5 times (5x), it means retail investors applied for 5 times more shares than available in the retail quota.

Retail Allotment Process

For retail investors, the allotment process depends on the subscription level:

Scenario 1: Undersubscribed or Fully Subscribed

Everyone who applied gets the full number of lots they bid for. Example: - Retail quota: 1,00,000 shares - Applications received: 80,000 shares - Result: All applicants get 100% allotment

Scenario 2: Oversubscribed up to 2x

Proportionate allotment to all applicants. Example: - Retail quota: 1,00,000 shares - Applications: 1,50,000 shares (1.5x subscribed) - Allotment: Everyone gets 66.67% of what they applied for - Applied for 3 lots → Get 2 lots - Applied for 1 lot → Get 0 or 1 lot (rounding)

Scenario 3: Oversubscribed more than 2x

Computerized lottery system. Each applicant has an equal chance. Example: - Retail quota: 1,00,000 shares (Lot size: 100) - Total lots available: 1,000 lots - Applications: 5,000 applicants (all applied for 1 lot) - Subscription: 5x - Allotment probability: 1,000 ÷ 5,000 = 20% (1 in 5 chance) Result: 1,000 lucky applicants get 1 lot each, 4,000 get nothing.

How the Lottery System Works

SEBI mandates a computerized lottery to ensure fair and random allotment:

Step 1: Application Numbering

Each application is assigned a unique application number.

Step 2: Computer Randomization

A computerized system randomly selects applications from the pool.

Step 3: Final Allotment

Selected applicants get minimum 1 lot. Process continues until all shares are allotted or all eligible applicants are covered. Important: Applying for more lots doesn't increase your chances in the lottery. Whether you apply for 1 lot or 14 lots (maximum retail application), your probability remains the same.

NII/HNI Allotment Process

For HNI category, allotment is always proportionate (no lottery): Formula: Shares Allotted = (Your Application Amount ÷ Total Applications in Category) × Total Shares in Category

Example:

- NII quota: 15,00,000 shares - Total NII applications: 45,00,000 shares (3x subscribed) - Your application: 3,00,000 shares Your allotment = (3,00,000 ÷ 45,00,000) × 15,00,000 = 1,00,000 shares You get 33.33% of what you applied for.

Minimum Allotment Rule

If proportionate allotment results in less than the minimum lot size, you get: - Either the minimum lot (rounded up) - Or zero shares (if not enough to round up)

When Does Allotment Happen?

The typical IPO timeline: Day 1-3: IPO subscription period Day 4: Basis of allotment finalized Day 5: Registrar uploads allotment data Day 6: Refunds initiated for non-allotted applications Day 7: Shares credited to Demat accounts Day 8: Listing on stock exchanges

How to Check Allotment Status

There are multiple ways to check your IPO allotment:

Method 1: Registrar Website

Visit the registrar's website (mentioned in IPO prospectus): Link Intime India: 1. Go to linkintime.co.in 2. Select company name from dropdown 3. Enter PAN or Application Number 4. Click "Submit" KFin Technologies: 1. Go to kfintech.com/ipostatus 2. Select IPO name 3. Enter application details 4. Check status Other Registrars: - Cameo Corporate Services - Bigshare Services - Alankit Assignments

Method 2: Broker App/Website

Most brokers show allotment status automatically: - Login to your trading app (Zerodha, Groww, Upstox, etc.) - Go to IPO section - Check status under "My Applications"

Method 3: BSE/NSE Website

You can also check on stock exchange websites: - BSE: bseindia.com - NSE: nseindia.com

Understanding Allotment Probability

How to calculate your chances: Formula: Allotment Probability = Total Shares Available ÷ Total Applications Received

Example Calculation:

Retail Category: - Shares available: 1,00,000 (Lot size: 50) - Total lots: 2,000 - Applications: 10,000 (all for 1 lot) - Probability: 2,000 ÷ 10,000 = 20% (1 in 5) Interpretation: If you applied for 1 lot, you have a 20% chance of getting allotted.

Factors That DON'T Affect Allotment

Common myths busted: ❌ Myth 1: Applying early increases chances Fact: Allotment is random/proportionate regardless of when you apply. ❌ Myth 2: Applying for more lots increases probability Fact: In lottery-based allotment, each applicant has equal chance. ❌ Myth 3: Using premium brokers helps Fact: Broker doesn't influence allotment. It's done by the registrar. ❌ Myth 4: High net worth increases retail allotment Fact: If you're in retail category, your wealth doesn't matter. ❌ Myth 5: Multiple applications increase chances Fact: Multiple applications with same PAN lead to rejection of ALL applications.

Tips to Improve Allotment Chances

While allotment is mostly luck (in case of lottery), here are some strategies:

1. Apply in Less Subscribed Categories

If retail is 10x subscribed but HNI is 2x, consider applying in HNI category if you can invest ₹2+ lakhs.

2. Target Smaller IPOs

Large IPOs get massive retail interest. Smaller, quality IPOs may have better allotment odds.

3. Apply for Multiple Family Members

Each PAN can apply once. If your spouse, parents, children have separate PANs and Demat accounts, they can apply too (legally).

4. Focus on SME IPOs

SME IPOs generally have lower subscription and better allotment chances, but higher risk.

5. Apply Consistently

Don't give up after a few rejections. Over time, you'll get allotments through probability.

What Happens After Allotment?

If You Get Allotment:

1. Shares credited to your Demat account (T+7 days) 2. Amount debited from bank account (only for allotted shares) 3. You can sell on listing day or hold for long-term

If You Don't Get Allotment:

1. Blocked amount unblocked in your bank (T+6 days) 2. No deduction from your account 3. You can apply for the next IPO

Partial Allotment:

If you applied for 3 lots but got only 1 lot: - 1 lot worth amount debited - Remaining amount unblocked - Partial refund processed

Special Cases

Green Shoe Option

Companies can overallot up to 15% of shares. If demand is high post-listing, these additional shares are allotted, else bought back.

Employee Reservation

Some IPOs reserve shares for employees. This quota is separate and has better allotment chances for eligible employees.

Shareholder Reservation

Some companies reserve shares for existing shareholders. Check if you qualify.

Red Flags in Allotment

Application Rejected? Here's Why: ❌ Multiple applications with same PAN ❌ Insufficient funds in bank account ❌ UPI mandate not approved ❌ Invalid Demat account details ❌ Application after cut-off time ❌ Bid price below issue price ❌ Technical errors in application

Conclusion

IPO allotment is a fair, regulated process governed by SEBI. While retail investors face lottery-based allotment in oversubscribed IPOs, understanding the process helps set right expectations. Key Takeaways: ✅ Retail allotment is lottery-based when >2x subscribed ✅ HNI allotment is always proportionate ✅ Applying for more lots doesn't increase retail probability ✅ Each PAN can apply only once ✅ Allotment status can be checked 4-5 days after IPO close ✅ Check registrar website for accurate allotment info Happy IPO investing! Use our IPO Calendar and Allotment Checker to track your applications.