What Happens when an IPO is oversubscribed in India?
- Asked By
- Updated On:03-Mar-2021
- Replies:1
Short Answer
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.
Detailed Answer
An IPO is oversubscribed when the number of shares that investors are willing to purchase is higher than the number of available shares. To put it simply, IPO oversubscription happens when the demand for a share is higher than the supply of the shares. Here in this article, we are going to discuss what happens when an IPO is oversubscribed in India and how they are allocated among the investors. So without any further delay, let us get it started.
Rules for Allocation of an IPO in case of Oversubscription
The allocation of shares of an IPO is done by the predefined rules set by the Securities and Exchange Board of India (SEBI). In IPO, investors are broadly categorized into the following categories.
- Qualified Institutional Investors
- Non-Institutional Investors
- Retail Investors
- Others (Employee Category in some case and so on)
Here, 50 percent of the total share of an IPO is allocated to the first category of investors which is Qualified Institutional Investors, and the remaining 35 percent then gets allocated to the retail investors.
In the case of IPO oversubscription, it gets allocated to the retail investors by calculating the total number of shares available for the retail investors and dividing it by the minimum lot size. This process helps in determining the number of total retail investors who will be allocated shares of an IPO.
However, even after all this, there is a higher chance that the number of retail investors comes higher than the maximum number of shares issued. In such cases, the eligibility for the minimum bid is determined by lottery, which is a computerized process, leaving no room for any potential errors.
Conclusion
So now you know what happens when an IPO gets oversubscribed in India. Good IPOs often get oversubscribed as the demand to buy the share of a particular company gets high. If you want to anything more about IPO and how it works then leave your queries in the comment section down below.
Ask Your Query for FREE, Get quick answers from our FINTRAKK community!
Discussion (0)
IPO prospectus is the document which gives information to the investors about the company statistics before they issue shares in public. It is mainly a 3 step process. For detailed description, read through the blog below.
An IPO or Initial Public Offering is where for the first time an earlier unlisted company sells new or existing securities and offers them to the public in the primary market.
Public Provident Fund Scheme is a saving scheme that comes with tax benefits. Ministry of Finance introduced this scheme in the year 1968. The main objective of PPF is to encourage general people to mobilize their small savings. The interest offered on these schemes are not taxable. Precisely, PPF is an investment with non-taxable returns.
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.
I was just going through some stock broker reviews. So, I thought of sharing my opinion, A side by side Comparison of two popular stock brokers: Sharekhan vs. Zerodha.
You can choose any bank in India to open an account in, be it a private-sector bank or a public-sector bank. By the market share SBI, HDFC, and ICICI Bank are the three top banks that can be considered when looking at the largest banks in India.
IPO or Initial Public Offering is the process through which a private company goes public by offering its shares to the public for the first time.
We all look to earn good returns on the money we invest. Putting money in High return investments is one way of generating better income. The different places to get good returns are mutual funds, equity, and gold investment in India.
The government of India is yet to announce a detailed framework that will contain the regulations related to the use of cryptocurrencies. However, there are rumors which state that the government might ban private cryptocurrencies. Also if you own banned cryptos, you can face liquidity risk, monetary fines, and halting of all mining and trading activities.
When talking about the best stock broker in India, we cannot rule out Zerodha. It is the market leader in bargain stockbroking, is premised in Bengaluru, and accounts for more than 15% of total retail trading activity in the country. Mr. Nitin Kamath formed the leading brokerage firm in 2010 Kamath, and it now has a customer base of over 6 million.