simplifying IPO Allotment process: A Guide for Investors
IPO allotment, or the distribution of shares to investors in an IPO, is a process that determines who gets how many shares. Here’s a breakdown of the process in simpler terms:
What is IPO Allotment?
IPO allotment is how shares are given to investors after an IPO. The Registrar, in coordination with the Exchange, decides who gets how many shares. You can check your allotment status on the registrar’s website 3-4 days after the IPO bidding ends.
How Does It Work?
- If an IPO is Undersubscribed across each investor category, all investors with valid applications will receive a full allotment. The IPO must receive a minimum total subscription of 90% to succeed.
- If the IPO is over-subscribed for one category and under-subscribed for another, the oversubscription may be adjusted with the under-subscribed portion of the other category, except for QIB.
- In case of oversubscription, the issuer will allocate shares based on a lottery system or proportionately based on the investor category. take a look at the IPO allocation criteria for each investor category.
IPO Allotment to Retail Investors (RII)
Each retail individual investor (RII) gets allocated at least one lot; provided there are those many shares reserved for RII in the IPO and the number of RII applicants. IPO shares are allocated in a bunch known as lot. A lot includes x number of shares worth around Rs 15,000 in Mainboard IPO and Rs 1,00,000 in SME IPO. The number of shares in lot (lot size) is declared by the issuer company along with the issue price.
The number of maximum retail investors who could get allotment in an IPO is derived by dividing the total number of shares offered in RII reserved category by the lot size.
Maximum RII Allotees = (Total shares offered to RII) / (IPO lot size)
For example; In Tech.com IPO, 842,865 shares were reserved for retail. The lot size of the IPO was 22 shares. Maximum Retail Allotees = 8,42,865 / 22 = 38,312 investors.
IPO Retail Category Basis of Allotment
| Scenario | Allotment Process | |
|---|---|---|
| 1 | RII category under-subscribed. | Full allotment to all applicants. |
| 2 | Total RII applications are greater than maximum retail investors who could get allotment. | Computerized lottery where the winners get maximum 1 lot of shares. |
| 3 | Total RII applications are less than maximum retail investors who could get allotment. | Each retail investor will be allotted at least one lot. The remaining shares will be allocated on a pro-rata basis. |
For example, if a company offers 5 lakhs shares to RII in an IPO with a minimum lot size of 250 shares. In this case, the maximum RII investors to whom the allotment can be made is (500,000/250) 2,000 investors.
Scenario 1: If 1,950 investors apply for 495,000 shares, all investors receive the full allotment because the RII category is not fully subscribed.
Scenario 2: If 2,500 investors apply for 650,000 shares, it is not possible to allocate at least one lot to each investor because there are only 500,000 shares for RII. In this case, the allocation is made by a computerized lottery system.
Scenario 3: If 1,975 investors apply for 525,000 shares, each investor will initially be allocated at least one lot, i.e. 250 shares. Of the remaining [500,000-(1,975*250)] 6,250 shares, the allotment is then made on a proportionate basis.
Systamatic Way to increase Your IPO Allotment Chances
adopting Below strategic practices can enhance your likelihood of securing an allotment.
Understanding IPO Allotment Basics
In the world of IPOs, allotment is a critical process influenced by the subscription level and investor category. Due to oversubscription in most IPOs, allocations often rely on a lottery system. Here are some effective strategies to increase your chances:
1. Diversify Applications in the Retail Category
- Rather than concentrating all your shares in one account, apply for one lot from multiple family accounts in the Retail category. This approach broadens your chances across various applications.
2. Strategic Decision-Making in Categories
- If faced with choices between Retail, Small High Net Worth Individuals (sHNI), and Big High Net Worth Individuals (bHNI) categories, consider waiting until the last day to gauge the response. Apply in the category showing the most favorable response for better allotment odds.
3. Timely Application Submission
- Avoid last-minute rushes; submit your application well before 1 p.m. on the issue closing day. Timely submissions can ensure your application receives due consideration and minimizes the risk of technical glitches.
4. Precision in Application Details
- Fill out all application details accurately and thoroughly. Any errors or incomplete information may jeopardize your chances of allotment.
5. UPI Mandate Approval
- Ensure timely approval of the UPI mandate, a crucial step in the application process. This approval facilitates a smooth transaction and enhances your chances of successful IPO allotment.
6. Post-Application Verification
- Once the IPO allotment is announced, carefully check the basis of allotment document to confirm your eligibility. If you believe you should have received shares but haven’t, promptly reach out to the Registrar for clarification.
7. Learn from Historical Data
- Study past Basis of Allotment documents to gain insights into the allotment process. Analyzing historical data can provide valuable information on how allotments are typically made and help you make informed decisions.
In conclusion, while there’s no guaranteed method for IPO allotment, investors can significantly increase their chances by adopting strategic and informed practices. By understanding the dynamics of allotment and adhering to best practices, investors can navigate the IPO landscape with greater confidence and increase their likelihood of a successful allotment.
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Reference:https://www.chittorgarh.com/