What is the step by step process of IPO allotment?
Sign Up to our stock-market-based Q&A Platform to ask questions, answer people’s questions, and connect with other people.
Login to IndianStox.com (Q&A Engine) to ask questions, answer people's questions & connect with other people.
Lost your password? Please enter your email address. You will receive a link and will create a new password via email.
What is the step by step process of IPO allotment?
IPO Allotment Process
Investors in the IPO can be retailers, qualified institutional buyers (QIBs) and they include pension funds, fund managers, investment banks, mutual funds, and insurance companies. These qualified institutions invest a huge volume of stocks in trading.
Securities and Exchange Board of India, SEBI, is the capital market regulator that sets in the rules and regulations in the allotment of the shares @IPO.
Allotment of Shares @IPO:
On the day of closing of the IPO, if an issue is fully subscribed then every investor shall be allotted the number of shares mentioned in the IPO application.
Condition:
Any company that hosts an IPO must obtain a subscription of at least 90 percent of its listing. Else, IPO is disqualified and the subscriber gets their investment refunded irrespective of the underwriter’s assurance.
Over Subscription @IPO
Yes, if you find an oversubscription at the IPO then it means more number of applicants have applied for the share allotment.
In such circumstances, an applicant shall always be eager to understand the share allotment from the total number of shares applied at the IPO.
The SEBI regulatory authority states that each retail bidder must get at least one bid from the allotted retail individual quota.
The company defines a lot that mentions shares per lot in the IPO application form. You (retail investor) can apply in lots for the equity share offerings.
Limitation:
You shall receive a minimum of one lot size or more and never shares allotted in a lot defined by the issuer. The company makes an allotment of shares on a proportional
If the subscription is over subscribed then the decision in selecting the subscribers for the allotment of the shares is simple.
The company will divide the total number of shares by the selected lot and arrive at the total number of available lots for allotment.
The company then checks the ratio between the total number of retail individual investors and the total number of available lots.
When the ratio is not in the 1:1 proportion then the company picks at random the retail applicants to allot the shares as a result several applicants are dropped out due to non-availability of the lots.
Note:
A retail investor is entitled to purchase share-lot up to a value of INR 2.00lakhs. Likewise, non-institutional investors can dream of getting allotted shares worth above INR 2.00 lakh. They do involve NRIs, companies, trusts, etc.
A thumb-rule states, an IPO governs retail investors ( 35 percent), NIIs ( 15 percent), and for QIBs ( 50 percent) that includes anchor book.
How to Check IPO Allotment Status:
There are multiple websites to check an IPO allotment status like linkintime.co.in, bseindia.com, kfintech.com
You must select the company name, enter the PAN, or Application number, or DP ID/Client ID. Further, enter captcha, and then submit the status query form.
Note:
In case you are not allotted with shares then two sections shall remain unfilled, and they are securities, and adjusted amount.
In the later stage, the registrar of the IPO will send information in regard to the ‘share allotment’ through messages, and emails.
The registrar of IPO sends emails and messages informing applicants about the allotment status.
Non-allotment of Shares for You:
After the finalisation of the allotment, if you are not allotted with shares then your spent money shall be refunded through the ASBA account. Else, your money gets deducted from the subscribers account against the allotment of the shares.
How Early Can I Put the Allotted Shares to Trade?
The retailers get their shares into their account on the fifth day from the IPO closing date and then subsequently they can do trading in the secondary markets.
Tabular column: Allotment of Shares @Overlysubscripted IPO
Allotment Procedure for Oversubscription Shares:
A comparative study is conducted on the investments made by the investors before selecting for share allotments. The software tool arranges a list of applicants and shares allotment in a tabular form.
Consider an example that states ten investors have placed an IPO, at a price which the shares are issued to the investor also known as cut-off price.
Let us assume that these investors have placed their bid in the range of 1 to 5 shares.
If you have observed you can find ten investors having applied for 29 shares. But as per the oversubscription, the demand may limit the allotment to say 5. Then, the computer makes a random pick and allotts the shares to investors.
As per the information made available in the tabular column, the investors Investors (2), (3), (7), (8), and (9) have obtained eligibility through lottery.
The registrar conducts the entire selection process against the IPO application.
Note:
In such circumstances, the registrar considers to pick up only investors having enrolled for the upper price band.
IPO Allotment Stages
An IPO allotment is like sharing slices of a cake (Here the entire cake is nothing but the company). Imagine a bakery selling limited cake slices to many people. People request how much portion of cake they want.
The bakery decides how to divide based on demand & the percentage of portion that they want to offer for public.
The IPO process completes in 5 stages
Step-1: Announcement of Initial Public Offering
Step-2: Application of IPO
Step-3: Allotment of Shares
Step-4: Refund to the non-allotted candidates
Step-5: Credit of IPO shares to the Demat Account
IPO Allotment Process: Everything You Need to Know
The IPO allotment involves a 6-stage process starting from subscription to the final allotment.
If you are planning to apply for an upcoming IPO in India, you must have some idea of how the IPO allotment process works:
Here is a detailed explanation of each stage of the IPO allotment process.
Subscription Period:
Before any company goes public, it announces an IPO and sets a subscription period during which investors can apply for shares.
This period usually lasts for a few days (mostly 7-10 days).
IPO Application:
Interested people will submit their application to purchase shares of the company.
During the IPO, applicants submit their applications through their respective brokers or online platforms.
In the application, investors specify the number of shares they wish to buy and at what price.
If you are not aware of how to apply for an IPO in your broker’s account, below guide will help you
How to Apply for an IPO in Zerodha
How to Apply for an IPO in Upstox Account
IPO Allotment:
Once the subscription period ends, the company, along with the investment banks, reviews the applications and determines how many shares will be allotted to each investor.
Allotment decisions are typically based on various factors such as the number of shares available, the demand for the shares, and any allocation criteria set by the company.
Lottery System Allotment:
In cases where the demand for shares exceeds the available shares (oversubscription), a lottery system may be used to allocate shares among investors.
In a lottery system, investors are randomly selected to receive shares.
Refunds:
Applicants who are not allotted any shares are typically refunded the amount they paid at the time of application.
These refunds are usually processed within a few days after completing the allotment process.
Listing:
After the allotment process is completed and shares are allocated to investors, the company lists its shares on the stock exchange for public trading.
Once listed, the shares can be bought and sold by investors on the secondary market.
Check the IPO Allotment Status Here
Myth & Facts of IPO Allotment Process
Understanding how the IPO allotment process works is essential for investors looking to participate in Upcoming IPOs in India.
In the below lines, I will try to answer some of the most common myths regarding IPO Allotment process & some FAQs.
Myth-1: All Investors who Apply for an IPO Receive an Allocation
Fact: In oversubscribed IPOs, where demand exceeds supply, not all investors may get the allocation. The allotment process depends on various factors, including subscription levels and allotment criteria.
Myth-2: Institutional Investors get Preferential Allocations in IPO.
Fact: Institutional investors may receive larger allocations in some cases, retail investors also have opportunities to participate in IPOs. The allotment process aims to ensure fair distribution among all investor categories.
Myth-3: Applying for More Lots Increases the Chances of Receiving an Allocation.
Fact: Applying for more lots does not guarantee an allocation. In fact, it may lead to a smaller allocation or even rejection in oversubscribed IPOs.
Myth-4: The IPO Price Determines the Allotment Price.
Fact: The allotment price may differ from the IPO price, depending on various factors such as demand, market conditions, and bidding patterns.
Myth-5: Retail Investors Have no Control over the IPO Allotment Process.
Fact: Retail investors can influence their chances of receiving an allocation by carefully considering factors such as bid price, subscription levels, and allotment criteria. Few investors apply for an IPO from multiple demat accounts to increase the chances of allocation.
FAQs:
Q1: How is the IPO allotment process initiated?
Ans: The IPO allotment process begins after the IPO subscription period closes and the company finalizes the allocation criteria.
Q2: What factors determine IPO allotment?
Ans: Allocation criteria includes subscription levels, investor categories, bidding patterns, and allotment methodologies specified by regulatory authorities.
Q3: How are shares allocated in an oversubscribed IPO?
Ans: In oversubscribed IPOs, shares may be allocated proportionately or through a lottery system, depending on the company’s discretion and regulatory guidelines.
Q4: Can retail investors apply for shares in an IPO?
Ans: Yes, retail investors can participate in IPOs by applying for shares through brokerage firms or online platforms during the subscription period.
Q5: Is there a minimum investment requirement for participating in an IPO?
Ans: The minimum investment requirement varies depending on the company’s IPO size and the regulatory requirements of the stock exchange. The investors must at least bid for 1 lot of shares.
Q6: How to check the IPO Allotment Status?
Ans: Investors can check their IPO allotment status through various websites like BSE & NSE Official websites, linintime, kfintech, and also on your Demat account.
Q7: What Happens if I don’t receive an Allocation in an IPO?
Ans: If an investor does not receive an allocation in an IPO, the amount paid for the applied shares is refunded to the investor’s account. For this, you don’t have to submit any application, it is an automatic process.
Q8: Are there any risks associated with participating in IPOs?
Ans: Like any investment, participating in IPOs carries certain risks, including market volatility, pricing uncertainties, and regulatory changes.
Q9: Can investors modify or cancel their IPO applications after submission?
Ans: In most cases, investors can modify or cancel their IPO applications within the specified deadline before the subscription period closes.
Q10: How soon after the IPO allotment process can investors start trading their allocated shares?
Ans: Investors can start trading their allocated shares once the IPO is officially listed on the stock exchange, usually a few days after the allotment process is completed.