IPO allotment: how shares are shared out after an IPO

After you apply for an IPO, the shares must be shared out among applicants. This is IPO allotment. This guide explains how allotment works, especially when an issue is oversubscribed.

Quick answer

IPO allotment is the process of deciding which applicants receive shares after an initial public offering, and how many. When demand is higher than the shares on offer, an issue is oversubscribed, and allotment follows set rules, often including a lottery for retail investors, to share the shares fairly.

Key takeaways

• IPO allotment decides who gets shares after an IPO.
• It follows rules set by SEBI.
• Oversubscription means more demand than shares.
• Retail allotment often uses a fair lottery.
• Unallotted money is unblocked under ASBA.

What is IPO allotment?

IPO allotment is the process of working out which applicants receive shares after an initial public offering, and how many each gets. It happens after the application period closes.

Because many people may apply, the shares must be shared out according to set rules. Allotment is where the company and its managers decide who is allocated shares.

How does allotment work?

The shares are divided among different categories of investors, such as retail investors and institutions, following SEBI rules. Within each category, the shares are allotted based on the demand received.

If demand exactly matches the shares on offer, everyone can get what they applied for. But often demand is higher, which changes how allotment works.

What happens when an issue is oversubscribed?

When an issue is oversubscribed, meaning demand is higher than the shares available, not everyone can get a full allotment. The shares must be shared out among more applicants than there is stock for.

For retail investors, a common method is a lottery, where a fair draw decides who gets the minimum lot. This keeps allotment fair when demand is very high.

How do you get your shares or money back?

If you are allotted shares, they are credited to your demat account and the money is debited from your blocked ASBA amount. If you get no allotment, the blocked amount is simply unblocked.

So under ASBA, you never lose access to money for shares you do not receive. Only allotted shares lead to a debit.

What should investors know?

For investors, IPO allotment means applying does not guarantee shares, especially in a popular, oversubscribed issue. The outcome depends on demand and the allotment rules.

Understanding IPO allotment helps you set realistic expectations. Any investment decision should be your own after proper research and reading all related documents.

Frequently Asked Questions