What is the formula for shares allotment in an IPO?

Short Answer

If a lot of investors show their interest in an IPO, then it is allocated through lottery and in case of a small number of potential investors SEBI defined norms are followed.

Detailed Answer

There isn't a straightforward formula for share allotment in an IPO.

There are three types of investors in an IPO such as qualified institutional buyers (QIBs), non-institutional investors (NIIs), and retail investors. For the first two types, shares are allotted on a proportionate basis.

In IPO, the share of allotment is done through SEBI norms. The SEBI share allotment rules say that the minimum bid lot is determined based on the minimum application amount, which cannot pass or fall below 10,000 - 15,000 INR. Previously the range was between 5,000 - 7,000 INR.

The retail investors will be given at least one lot. Bids that are at or above the issue price mentioned above only qualify for share allotment. The remaining shares are then allotted based on a draw of lots.

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Categories: IPO Basics
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Related FAQs

What is Basis of Allocation or Basis of Allotment in IPO?

It is the document issued by the owner of the IPO for share allocated as per the regulatory guidelines in an IPO. This contains all the crucial details about the Initial Public Offering.

How to Check IPO allotment in Zerodha?

There are many ways to check the IPO allotment status but Zerodha doesn't provide this facility on their website. To check the allotment status you can visit the website of the registrar of the IPO, for example, Link Intime, Karvy. With the help of a PAN number, you can easily check the status.

How to increase IPO allotment chance?

Subscribing for an IPO with multiple accounts, avoiding last-day applications, and choosing minimum bids are few ways to increase IPO allotment chances.

Does applying in an IPO guarantee me to get certain amount of shares?

No, applying for an IPO does not guarantee you nay shares that would be allocated to you. Simply, applying is no surety to getting the shares as well.

Does IPO get allocated to people who apply first?

No, IPO allotment doesn't work like that. It is not dependent on who applied first, rather it is based on the total issue demand. There isn't a formula but a set process based on which the shares get allotted to different category of applicants.

Is it mandatory to have a Demat account to apply in an IPO?

Yes and no at the same time. Although you can apply for an IPO without a Demat Account in some cases, the allotted shares are tradable through a Demat Account, Thus, a Demat account is recommended for an IPO.

How to apply IPO in Zerodha? Buy IPO Online

If you are a Zerodha customer, you can apply for IPO online through Zerodha Console (Zerodha Back-office). The process for applying an IPO process has been explained in detail above. Here are few other answers to important queries that you may want to learn.

How to sell IPO?

You can sell your shares of an IPO through the stockbroker application or website. Let's see what's the simple process to sell the shares you hold.

What Happens when an IPO is oversubscribed in India?

IPO is alloted by following the pre-defined rule laid down by the SEBI. When an IPO is oversubscribed it gets allocated by considering the minimum lot size. If still not solved, then a computerized draw of lots is conducted.

What is Market Lot Size and Minimum Order Quantity for an IPO?

Minimum order quantity stands for the minimum amount of shares that have to be purchased to secure an IPO investment. However, an investor purchasing bare minimum shares in a package are coined as market lot size.