How IPO Allotment Works: Basis of Allotment in an Oversubscribed IPO

IPO allotment decides how available shares are distributed among investors after an issue closes. When an IPO is oversubscribed, retail investors are allotted the minimum bid lot through a draw of lots when there are more valid applicants than available lots. NII allotment also uses a draw-of-lots mechanism for the minimum application size, with any remaining shares allotted proportionately, while QIB allocations are generally proportionate.

In this blog, we'll look at how IPO allotment works in an oversubscribed issue, how the lottery and proportionate methods differ by investor category, when the IPO allotment date falls, and how to confirm whether you got an allotment.

#How IPO allotment works in an oversubscribed issue

Every IPO splits its shares across three investor groups before a single application comes in. Retail individual investors, meaning anyone applying for up to ₹2 lakh, get not less than 35% of the net offer. Non-institutional investors, who apply for more than ₹2 lakh, get not less than 15%. Qualified institutional buyers, such as mutual funds and insurers, may acquire no more than 50%, with 5% of that portion reserved for mutual funds.

The allotment method varies by investor category. Retail investors receive at least the minimum bid lot if selected, while NII investors are subject to their applicable minimum application size. QIBs are generally allotted proportionately without a retail-style minimum-lot lottery. 

#How retail allotment is decided

In a heavily oversubscribed retail category, allotment comes down to a lottery, and every valid application has the same chance no matter how many lots you applied for. This is the small-investor protection SEBI builds into the basis of allotment.

Here is the arithmetic: suppose the retail portion has 1,00,000 lots available and receives 5,00,000 valid applications. Only 1 in 5 applicants is given a single lot, and the registrar selects them at random. Each valid applicant counts as one entry in the draw, whether they bid for one lot or thirteen. Applying for more lots does not raise your odds; the extra money you block is simply released later.

The picture changes only when the retail portion is mildly oversubscribed, so that one lot for every applicant is still possible. In that case, larger applications can pick up a little more above the minimum lot. Most in-demand mainboard IPOs run several times oversubscribed, so the lottery is usually what decides your outcome.

#How allotment works for NII and QIB investors

Non-institutional investors have been split into two sub-categories since 2022: applications from ₹2 lakh to ₹10 lakh, and applications above ₹10 lakh. At least one-third of the NII quota is set aside for the smaller sub-category and two-thirds for the larger one. Within each, an oversubscribed bucket is settled by a draw of lots to the minimum lot, with any balance allotted proportionately. Large borrowed bids can no longer sweep up almost the entire category.

Qualified institutional buyers are treated differently. Their portion is allotted on a pure proportionate basis, so there is no minimum-lot lottery. Big institutional bids are simply scaled down in line with the degree of oversubscription in the book.

#IPO allotment date and the T+3 timeline

Your IPO allotment date falls one working day after the issue closes. SEBI's T+3 timeline, mandatory for all public issues since 1 December 2023, runs as follows, where T is the closing day:

• #T+1: the registrar finalises the basis of allotment.
• #T+2: Allotment, demat credit, and unblocking of funds are completed within the prescribed timeline. 
• #T+3: the shares are listed and begin trading on the exchange.

There is no fixed ipo allotment time of day published by SEBI that you need to watch for. The result usually appears on the registrar and exchange websites on T+1 and T+2 once the allotment is approved.

#How to check your IPO allotment status

You can check your IPO allotment status on the registrar's website, on stock exchange websites, or through your broker using your PAN, application number, or DP ID and Client ID.

• #Registrar websites: Registrars such as Link Intime and KFintech host application status pages. Select the IPO, then enter your PAN, application number, or DP ID and Client ID.
• #Stock exchanges: Both BSE and NSE offer an allotment status page where you can select the issue and enter your application number or PAN.
• #Broker or demat account: Your broker's order book shows the result once the registrar returns the final file, and any allotted shares appear in your NSDL or CDSL holdings from T+2 onward.

No separate password is needed for any of these channels.

#What actually affects your allotment odds

A few habits genuinely change your position, while some common beliefs do nothing.

Only one application per PAN is allowed in an issue. Extra applications on the same PAN, even through different brokers or bank accounts, get rejected. Applying through the separate PANs of family members, each with their own demat and bank account, is allowed and treats each person as a distinct applicant.

If you are a retail investor, bid at the cut-off price so your application stays valid whatever final price is fixed within the band. A bid placed below the discovered issue price is set aside and earns no allotment.

Timing carries no advantage. Applying on the first day or at a particular hour gives you no edge, because every valid application within a category goes into the same draw on equal terms.

#Conclusion

Allotment in an oversubscribed IPO follows fixed rules rather than luck of the queue. Retail and NII shares are settled by a random draw when demand is high, so a clean, cutoff application on a single PAN is the most you can do to improve your chances. 

Once you understand the method, the wait between the closing day and your allotment date feels a lot less mysterious. To apply for public issues, you first need a demat account, and you can open demat account with SMC to get started.

Investments in securities markets are subject to market risks. Read all the related documents carefully before investing.