If you ever applied for an IPO, also known as Initial Public Offering, you probably waited in anticipation of finding out whether you won the shares or not. The final stage of an IPO, wherein companies grant shares to applicants, is known as an IPO allotment process.
So, when we break this down into simple terms, IPO allotment basically refers to the process for allocating the company’s IPO shares to the people who applied for the IPO. It is not arbitrary but rather follows a step-by-step procedure for the sake of transparency and fairness. This article will break down how the IPO allotment process works in simple English.
Why is IPO Allotment Important?
IPO allotment is not just about giving shares — it’s a structured process that serves several important purposes:
- Fair distribution of shares, especially when more people want shares than are available (oversubscribed IPO).
- Transparency through a clear process overseen by the stock exchange and a registrar.
- Building investor trust, so more people feel confident to participate in future IPOs.
- Helping the company raise money from a wide range of investors for growth and expansion.
- Following SEBI rules and other regulatory guidelines to keep the process clean and fair.
Types of IPO Investors
Before we dive into the allotment process, it helps to know that investors are divided into different categories. Each category gets a fixed portion of the total shares:
- Retail Individual Investors (RIIs)
- Individual investors who apply for up to ₹2 lakh worth of shares.
- At least 35% of the total IPO size is reserved for retail investors.
- If the IPO is oversubscribed, allotment is done through a lottery system.
- Non-Institutional Investors (NIIs) / High Net-Worth Individuals (HNIs)
- Investors who apply for more than ₹2 lakh.
- This category includes individuals, trusts, and companies with bigger investment goals.
- Around 15% of the IPO is usually reserved for this group.
- Qualified Institutional Buyers (QIBs)
- Big institutions like mutual funds, insurance companies, banks, and pension funds.
- They must meet SEBI’s strict criteria to qualify as QIBs.
- About 50% of the IPO is reserved for QIBs.
- Anchor Investors
- Large institutional investors (like foreign funds, mutual funds, or banks) who invest a big chunk of money before the IPO opens to the public.
- Their participation helps set the IPO price and boosts market confidence.
Step-by-Step IPO Allotment Process
Here’s how the IPO allotment process works, from application to shares in your Demat account:
- Application
- You apply for the IPO through your broker or online platform.
- You choose how many lots (minimum units) you want and the price per share (within the price band, if it’s a book-built IPO).
- Subscription Period
- The IPO remains open for a fixed period, usually 3–5 working days.
- During this time, investors can submit, modify, or cancel their bids.
- Closure & Verification
- After the subscription period ends, the registrar checks all applications.
- Invalid or duplicate applications are rejected.
- Allocation & Categorisation
- Applications are grouped into categories: RII, NII/HNI, QIB, etc.
- Shares are then allocated as per SEBI’s rules (e.g., 35% to retail, 15% to NII, 50% to QIB).
- Allotment Finalisation
- If the IPO is undersubscribed (demand is less than supply), most applicants get the shares they applied for.
- If the IPO is oversubscribed (more demand than supply), shares are allotted through:
- Lottery system (for retail investors, when demand is very high).
- Pro-rata basis (proportionate allocation when there are leftover shares after minimum lot allotment).
- Share Credits
- Once allotment is finalised, the shares are credited to the Demat accounts of successful applicants.
- This usually happens within a few working days after the IPO closes.
- Refund of Money
- If you didn’t get any shares, the blocked amount in your bank account is automatically released.
- The refund is processed within a few working days.
- Basis of Allotment (BO)
- The registrar publishes a document called the Basis of Allotment (BO).
- It shows:
- Total demand in each category.
- How many shares were allotted to each category.
- The cut-off price (in book-built IPOs).
- This document ensures the process is fair and transparent.
What is the Basis of Allotment (BO)?
The Basis of Allotment (BO) is like the “rulebook” for how shares are distributed in an IPO. It explains:
- How many applications were received.
- How many shares were applied for in each category.
- How many shares were finally allotted to each category.
- Whether the IPO was undersubscribed or oversubscribed.
The BO is made public after the IPO closes, so investors can see how the shares were distributed and why some people got shares while others didn’t.
When and How to Check IPO Allotment Status
Once the IPO closes, you can check whether you got shares. Here’s how:
- On Stock Exchange Websites
- Go to the IPO section on NSE or BSE.
- Enter your application number or PAN to check your status.
- Through Your Broker/Platform
- Most brokers (like Groww, Zerodha, Upstox, etc.) show IPO status in their app.
- Steps (example for Groww):
- Open the Groww app.
- Go to the IPO section.
- Select the IPO you applied for.
- View your allotment status on the screen.
- You’ll also get an email or notification once the allotment is done.
- On Registrar’s Website
- Check the website of the IPO registrar (like KFin Technologies, Link Intime, etc.).
- Enter your PAN or application number to see your allotment details.
Allotment is usually finalised within 3–5 working days after the IPO closes.
What Happens After Allotment?
Once the allotment process is complete:
- Shares are credited to the Demat accounts of successful applicants.
- Money is refunded to those who didn’t get any shares.
- Basis of Allotment (BO) is published, so you can see how shares were distributed.
- Listing on stock exchange happens after all this, usually within 6 working days of the IPO closing.
After listing, you can buy, sell, or hold the shares just like any other stock.
Factors That Affect IPO Allotment Chances
Your chances of getting shares in an IPO depend on several factors:
- Total number of applications received for the IPO.
- Demand in each investor category (retail, NII, QIB).
- Total issue size (how many shares are being offered).
You can improve your chances by:
- Applying for the minimum lot size (retail investors often have better chances this way).
- Using UPI for payment (faster processing, fewer rejections).
- Applying through multiple Demat accounts (of family members, if needed).
- Bidding at the highest price in the band (in book-built IPOs, higher bids may get priority).
Final Thoughts
The IPO allotment is a fair and transparent process, which is ensured by allocating the right shares to investors. Though it seems like a lottery system while there is an oversubscription for IPOs, knowing about it can help you apply more wisely.
It is very important that you read every detail of an IPO and check its Basis of Allotment. But with a little knowledge and patience, you too can become an efficient IPO investor and make informed choices when dealing with stocks.
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