Understanding IPO Lots
An IPO lot is the minimum number of shares you can apply for. You can only apply in multiples of this lot size. Understanding how lots work is crucial for optimizing your IPO applications.
How Lot Size is Determined
SEBI guidelines require:
- Minimum application value of approximately ₹15,000 for retail category
- Companies set lot sizes so one lot costs between ₹14,000-15,000 approximately
- Higher-priced shares have smaller lot sizes
Example Calculation
If IPO price band is ₹500-520:
- Target: ~₹15,000 minimum application
- Lot size: 30 shares (30 × ₹500 = ₹15,000)
- One lot value at upper band: 30 × ₹520 = ₹15,600
Retail Category: The Lottery System
In the retail category (applications up to ₹2 lakh), allotment is through lottery when oversubscribed. This has important implications:
Key Insight
Your probability of getting allotment is the SAME whether you apply for 1 lot or 13 lots.
Why?
- Each application (not each lot) enters the lottery
- Winners receive at least one lot
- Applying for more lots just blocks more money
- If you win, you get one lot (in highly oversubscribed IPOs)
Optimal Strategy for Retail Investors
Strategy 1: Single Lot Application
When to use: Highly anticipated IPOs expected to be heavily oversubscribed
Why: Same probability as multiple lots, frees capital for other opportunities
Strategy 2: Maximum Lots
When to use: IPOs expected to have moderate subscription (1-2x)
Why: Better chance of receiving more than one lot
Calculating Maximum Lots
Formula: Maximum Lots = ₹2,00,000 ÷ (Lot Size × Upper Band Price)
Example:
- Lot size: 30 shares
- Upper band: ₹520
- Value per lot: ₹15,600
- Maximum lots: ₹2,00,000 ÷ ₹15,600 = 12.8 → 12 lots
Multiple Applications Strategy
The most effective way to increase allotment chances:
How It Works
- Each PAN can have only one retail application
- Family members can apply separately
- Each application enters the lottery independently
Example
If you apply 1 lot and have 4 family members also apply 1 lot each:
- 5 independent lottery entries
- Higher collective probability of at least one win
- Same total capital as one person applying for 5 lots, but better odds
Mathematical Comparison
Assume 25% allotment probability (4x subscription):
- One person, 5 lots: 25% chance of winning (gets 1 lot)
- Five people, 1 lot each: 76% chance of at least one winning
Calculation: 1 - (0.75)^5 = 76.3%
NII Category: Different Game
For applications above ₹2 lakh (NII/HNI category), the rules change:
Proportionate Allotment
Allotment is proportionate to amount applied:
- Higher application = more shares
- But return percentage remains same
Break-even Calculation
Consider if the expected return justifies the capital blocked:
- Expected allotment value = Application amount ÷ Subscription times
- Expected profit = Allotment value × Expected gain percentage
- ROI = Expected profit ÷ Application amount
Category Selection: Retail vs NII
When to Stay Retail
- IPO expected to be highly oversubscribed
- Limited capital available
- Want to leverage lottery system
When to Consider NII
- Subscription expected to be lower in NII
- Have significant capital to deploy
- Want guaranteed proportionate allotment
Practical Tips
For Most IPOs
- Apply for 1 lot from your account
- Have family members apply separately
- Each person applies for 1 lot
- Better probability with same total capital
For Less Popular IPOs
- Check subscription trends during IPO period
- If subscription is low, applying for more lots makes sense
- You might actually get all applied lots
Capital Management
- Don't block all capital in one IPO
- Multiple smaller applications across IPOs can yield better results
- Keep some capital free for good opportunities
Conclusion
For retail investors, the lottery-based allotment means applying for more lots doesn't improve your odds. The smart strategy is to apply for minimum lots from multiple demat accounts (family members). This maximizes your probability of allotment while keeping capital available for other opportunities. Always evaluate each IPO's subscription expectations before deciding your lot strategy.