IPO Allotment Process: The Complete Guide

IPO (Initial Public Offerings) investments can evoke excitement and confusion, particularly in understanding the IPO allotment process.  We will help you comprehend the complexities of these systems and provide clarity and insight into the IPO share allotment process. By breaking down each step, we aim to simplify procedures, enabling you to navigate the world of IPOs with confidence and well-informed decisions.

IPO Allotment Process – Know It All

Before diving into the nitty-gritty of IPO allotment process, let’s establish some key terms:

• Initial Public Offering (IPO): When a company raises capital by issuing its shares to the public for the first time.
• IPO Allotment: Assigning subscribed shares to investors based on specific criteria. The IPO allotment process ensures fairness and transparency in distributing shares among the investors. 
• Retail Investors: They are individual investors applying for shares in an IPO.
• Qualified Institutional Buyer (QIB): Institutional investors like banks, mutual funds, etc., are allotted shares separately in the IPO allotment process, often due to their significant investment capacity and expertise.

Now, let’s explore the details regarding the process of IPO allotment:

1. Application and Bidding:

• Once you’ve decided on your desired shares, you apply for your broker, indicating the quantity of shares you wish to purchase and, if applicable, your bid price. This bid price represents the maximum amount you will pay per share. The broker then processes your application along with others, considering factors like demand and bidding prices during the IPO allotment process. Alternatively, you can also bid for IPO shares online through designated platforms. 

• Bidding can be fixed-price or book-building, where the final price is determined based on demand and supply. In the fixed-price method, the price is set beforehand. In book-building, the price is decided based on how many investors want to buy and sell. This flexible system for the IPO allotment process sets a fair price based on market interest and reflects investor feelings and market conditions.

2. Scrutiny and Verification:

• After you submit your application for an IPO, the registrar and stock exchange carefully review the information provided to ensure accuracy and eligibility. This verification process involves confirming personal information, financial data, and compliance with regulatory requirements. Once the application passes scrutiny, it moves forward in the IPO allotment process, potentially leading to the allocation of shares to the applicant.

3. Allotment Based on Category:

• Retail Individual Investors (RIIs): Allotment happens through a lottery system for oversubscribed issues.
• Non-Institutional Investors (NIIs): Allotment follows a proportionate basis within the subscribed quantity.
• Qualified Institutional Buyers (QIBs): Allotment happens based on bids received during book building.

4. Intimation and Payment:

• You receive an email or SMS notification about your IPO allotment status.
• Investors must pay the due amount within the required timeframe if allotted shares.

5. Credit of Shares to Demat Account:

• Following successful payment, shares are deposited into your Demat account within a few days It helps keep the IPO allotment process running smoothly, ensuring timely transactions.

Process of IPO Allotment:

Here’s a simplified summary of the IPO share allotment process:

1. Apply for the IPO online or through your broker.
2. Your application undergoes scrutiny.
3. Shares are allotted based on your category and subscription.
4. Receive allotment notification and make payment (if applicable).
5. The shares allocated to you are deposited into your Demat account.

How are IPO shares allotted?

The IPO allocation process can be broadly categorized into two scenarios:

1. Oversubscribed IPOs: A lottery system determines allotment for retail investors when demand exceeds the available shares. Non-institutional investors receive a proportionate share based on their subscriptions.
2. Undersubscribed IPOs: When demand falls short of offered shares, all valid applications usually receive full allotment. 

Procedure for Allotment of Shares in an IPO Allotment Process:

Allocation of shares in an IPO is governed by SEBI (Securities and Exchange Board of India) guidelines and involves the following key players:

• Issuer Company: The company raising capital through the IPO.
• Lead Manager: The investment bank managing the IPO process.
• Stock Exchange: The platform where the IPO is listed for trading.
• Registrar: An independent agency handling application processing and allotment.

Reason for No Allotment of Shares in an IPO Allotment Process:

Several factors can lead to no allotment of shares in an IPO:

• Oversubscribed IPO: High demand may result in no allotment, even with a valid application.
• Application Rejection: Incomplete or ineligible applications get rejected.
• Insufficient Funds: Failure to pay within the required timeframe leads to cancellation.

Understanding the process of IPO allotment empowers you to participate in these offerings with more clarity and confidence.  The IPO allotment process involves an element of chance, especially for oversubscribed issues. However,, staying well-informed and adhering to the appropriate procedures can enhance your prospects of obtaining shares in your preferred IPO.

Following this comprehensive guide, you’ll be well-equipped to navigate the IPO allocation process and unlock exciting investment opportunities!

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*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

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