How Shares Are Allotted In IPO?

When a company goes public, it offers an IPO. By doing so, the company allows the public to invest in their shares for the first time. However, everybody doesn’t get IPO shares. This is because the demand for these shares is greater and many investors are willing to invest in them. This makes it important to understand the IPO share allotment process. The IPO allotment is primarily based on number of shares available and demand among investors. Moreover, a group of professionals manages the process by making sure fairness and transparency are followed. In this blog, you will understand how is IPO allotment done, its rules, and how to check the allotment status.

Key Highlights 

• The IPO allotment process makes sure that shares are distributed fairly based on their demand and availability. 

• Different allotments are made depending on the subscription levels. An IPO is cancelled if less than 90 percent is subscribed. However, over 90 percent ensures that all valid applicants get their shares.

• According to different classes of investors, allotment rules differ. Retail individual investors, non-institutional investors, and qualified institutional buyers have their guidelines concerning this area.

• To check the status of IPO allotment online, investors can use their PAN number, application number, or Demat account number.

IPO Allotment Process

An investor can obtain shares of a private company, now- public through the IPO allotment process. This process aims to maintain fairness in share distribution and transparency with investors. To understand it better, let’s discuss the IPO share allotment process in brief:

Step 1: Initiate Application

You can apply for an IPO either online or offline. However, you must ensure sufficient funds in your account to cover your bid. This is because market regulators have made it mandatory to block the amount required for your bid. Therefore, your application might not get accepted if you do not have enough funds in your account.  

Step 2: Allotment 

The process is carried out privately and the allotment is done thus, it is essential to keep in mind that every applicant will depend on the number of bids and their validity. That has IPO shares allotted. This is because demand often exceeds the supply. 

Step 3: Approval

The IPO registrar finalises and validates the allotment within seven days and confirms allotment to successful bidders. You can check the registrar’s site or NSEs/BSEs to review the IPO allotment status. To do so, you must have your PAN number along with your DP ID or Client ID number or the bid application number.

IPO Share Allotment Process Rules

Every IPO share allotment process is governed by specific regulations determining the shares to be allocated among investors. Such regulations differ with the various classes of investors. These rules aim to ensure fairness and transparency during the allocation process. Let’s discuss these rules in brief:

• The Registrar allocates IPOs by coordinating with the designated stock exchange.
  
• The shares you receive will depend on the availability of shares and the number of bids received for each kind of investor (Non-Individual Investors, Qualified Institutional Buyers, Retail Investors).

• Each investor category will have different allotment rules.

• Only proper applications are acknowledged. Applications with errors, like incorrect Demat account numbers or duplicate PAN numbers, get disqualified.

• Only bids at or above the cut-off price are taken into account.

• With approval, any under-subscription in one category (except QIB) can be covered from the excess in another category.

• Unallocated QIB shares cannot go to other categories.

IPO Allotment Method As Per Subscription Level

The IPO allotment process is determined by the number of shares subscribed and the total available shares. This knowledge is important for investors to know how the allotment process works where demand exceeds supply. So let’s understand the IPO allotment process with this method in brief: 

Under Subscription (less than 90%)

The IPO is cancelled if less than 90% of shares are subscribed, and the money paid by all applicants is returned.

Subscription of More than 90%

All valid applicants get the shares they applied for when more than 90% of shares have been subscribed.

Oversubscription

Where there is a higher demand for shares than what is available, the shares can be allocated proportionally or using a computerised system.

IPO Allotment Process Date

The IPO allotment date is when the Registrar announces which investors received the shares. Investors can verify whether they have received the shares by visiting the registrar’s website. This can be done by entering the PAN number, IPO application number, or Demat account number. Furthermore, according to regulation, the IPO allotment process should be concluded within five to seven business days following its closure.

IPO Allotment by Investor Category

Different categories of investors have different rules, resulting in different IPO allotment proportions. An investor needs to understand how it works to know their chances of getting any shares. So, let’s discuss the investor categories in brief:

Retail Individual Investors (RIIs)

These are people who invest up to INR 200,000 in an IPO.

Non-Institutional Investors (NIIs)

These are investors who put in more than INR 200,000. NIIs include high-net-income individuals, Hindu undivided families, and corporate companies.

Qualified Institutional Buyers (QIBs)

QIBs are large investors like foreign institutions, venture capital funds, banks, mutual funds, insurance companies, and pension funds. They often get priority in allotments because they invest large amounts of money.

Reserved Category

This category includes shares reserved for employees of the company and existing shareholders of its parent company. These shares are separate from the general offer and are additional to the shares available to RIIs, NIIs, and QIBs.

How to Check IPO Allotment Status?

To check whether you have received IPO shares, you will require a PAN number, application number, or Demat account number. The status of the IPO allotment can be checked online on the same day when it is disclosed by the Registrar. Here are some steps through which you can check the IPO allotment status:

Step 1: Visit the IPO Allotment Status webpage

Step 2: Select which IPO that interests you.

Step 3: Click on the IPO allotments status button

Step 4: You will be redirected to the Registrar’s site.

Step 5: Choose from the dropdown list; select an IPO.

Step 6: Enter your PAN number, application number, or DP Client ID.

Step 7: Click on submit and see your allotment status.

If shares have been allocated to you, the website will display the number of shares allotted. However, if there were no shares allotted then this page would remain empty.

Conclusion

To successfully navigate through an IPO, investors need to understand the IPO allotment process. This process determines how shares are distributed based on subscription levels and investor categories. This means when demand is high, shares may be allocated fairly. Moreover, the IPO allotment date plays a crucial role in determining if one has received shares or not. Therefore, understanding the steps of checking your status and rules concerning different classes of investors is essential. This helps people have realistic expectations about their investments and make better decisions.

FAQs on the IPO Allotment Process