Understanding IPO Allotment
After an IPO subscription period ends, the next crucial step is determining who gets shares and how many. The allotment process follows SEBI guidelines and varies by investor category. Understanding this process helps you strategize your IPO applications better.
IPO Investor Categories and Reservations
SEBI mandates specific allocation percentages for different investor categories:
1. Qualified Institutional Buyers (QIB) - 50%
Large institutional investors including:
- Mutual funds
- Insurance companies
- Foreign Portfolio Investors (FPIs)
- Banks and financial institutions
- Pension funds
2. Non-Institutional Investors (NII/HNI) - 15%
Individuals and entities applying for more than ₹2 lakhs. This category is further split:
- Small NII (sNII): ₹2-10 lakhs (1/3 of NII portion)
- Big NII (bNII): Above ₹10 lakhs (2/3 of NII portion)
3. Retail Individual Investors (RII) - 35%
Individual investors applying for up to ₹2 lakhs. This is where most individual investors participate.
Allotment Methods by Category
Retail Category: Lottery System
When the retail category is oversubscribed, allotment happens through a computerized lottery:
How the Lottery Works
- Maximum RII: First, calculate how many retail investors can receive at least one lot
- One Lot Per Applicant: SEBI mandates that each successful applicant must receive at least one lot (minimum allotment)
- Random Selection: A computerized lottery randomly selects which applicants get shares
- Equal Treatment: Whether you applied for 1 lot or 13 lots (maximum at cut-off), your probability of selection is the same
Example Calculation
Suppose:
- Total retail shares available: 50,00,000 shares
- Lot size: 100 shares
- Total lots available for retail: 50,000 lots
- Total retail applications: 2,00,000
Only 50,000 out of 2,00,000 applicants (25%) will get allotment. Each winner receives 1 lot (100 shares).
Probability of Allotment
Your probability = (Available Retail Lots) / (Total Retail Applications)
In the above example: 50,000 / 2,00,000 = 25% chance
NII Category: Proportionate Allotment
Unlike retail, NII allotment is proportionate to the amount applied:
How It Works
- Calculate subscription ratio (e.g., 10x means 10 times subscribed)
- Divide applied shares by subscription ratio
- Applicant receives proportionate shares
Example
If NII category is subscribed 10 times and you applied for 1000 shares:
Allotment = 1000 / 10 = 100 shares
Minimum Allotment Rule
Each successful NII applicant must receive at least one lot. If proportionate calculation gives less than one lot, a lottery determines winners who get one lot each.
QIB Category: Discretionary
Book Running Lead Managers have discretion in allocating to QIBs, though:
- At least 60% must go to anchor investors
- Mutual funds must receive minimum 5% of QIB portion
Factors Affecting Your Allotment Chances
For Retail Investors
- Number of Applications: Apply from multiple demat accounts (family members) to increase chances
- Subscription Level: Higher subscription = lower probability
- Cut-off Price Bidding: Always bid at cut-off to avoid rejection
For NIIs
- Amount Applied: Higher application amount = more shares (proportionately)
- Subscription Level: Higher subscription = more capital blocked for same allotment
- Capital Efficiency: Consider if the proportionate allotment justifies capital blocked
IPO Allotment Timeline
SEBI has reduced the timeline significantly:
| Event | Timeline |
|---|---|
| IPO Closes | Day T |
| Basis of Allotment Finalized | T+3 working days |
| Shares Credited / Refunds Initiated | T+4 working days |
| Listing | T+5 working days (T+3 for many new IPOs) |
Checking Your Allotment Status
You can check allotment status through:
- BSE/NSE websites (IPO allotment status pages)
- Registrar's website (Link Intime, KFin Tech)
- Your broker's app/portal
- SMS alerts (if registered)
What Happens After Allotment?
If You Get Allotment
- Blocked amount is debited from your bank account
- Shares are credited to your demat account
- You can sell on listing day or hold for longer term
If You Don't Get Allotment
- ASBA mandate is released
- Blocked funds become available again
- No charges for unsuccessful applications
Strategies to Improve Allotment Chances
For Retail Investors
- Multiple Applications: Apply from family members' accounts (each with unique PAN)
- Minimum Lots: Since lottery gives same probability regardless of lots applied, apply for minimum to save capital
- Bid at Cut-off: Avoids rejection due to price
- Apply Early: Avoid last-minute technical issues
For NIIs
- Calculate Break-even: Determine subscription level at which proportionate allotment makes sense
- Consider Small NII: Better allocation in ₹2-10 lakh category
- Time Your Application: Monitor subscription trends before applying
Conclusion
Understanding the allotment process helps you make smarter IPO application decisions. For retail investors, the lottery system means applying from multiple accounts offers better odds than applying for more lots from one account. For NIIs, careful calculation of expected returns versus capital blocked is essential. Whatever your category, always ensure complete and accurate applications to avoid rejection.