IPO Allotment Process for Retail Investors

The IPO allotment process determines how shares are distributed among investors once the subscription period for an IPO ends. 

When a company goes public, investors can apply for shares within a specific time window. If applications exceed the available shares (oversubscription), shares are allotted as per set guidelines to ensure fairness. These rules vary depending on the investor category and level of demand. 

In this article, we’ll break down how IPO allotment works and explain the key rules and criteria you need to know. So, let’s dive in!

What is IPO Allotment?

IPO allotment is the process of distributing shares of a company to investors who applied during an IPO. It is managed by the registrar after the subscription period ends. It determines how many shares each applicant receives based on demand and eligibility. 

If oversubscribed, shares are allocated by lottery or proportionally; if undersubscribed, all valid applicants get shares.

The key features of the IPO allotment are as follows:

• Only valid applications are considered (correct Demat, PAN, etc.)

• Allotment based on investor categories (Retail, NII, QIB)

• The lottery or pro-rata allotment method is used if oversubscribed

• Shares credited to Demat accounts; refunds for unallotted shares

• Allotment details are published in the Basis of Allotment document

How IPO Allotment Works

As an investor, it’s important to understand how IPO allotment works in reality.  Once the bidding period ends, all applications are reviewed and matched against the total number of shares available. If the issue is oversubscribed, not everyone who applies will receive shares.

The IPO allotment process follows SEBI’s guidelines and typically involves:

• Categorization of investors: Shares are divided among retail investors, Qualified Institutional Buyers (QIBs), and Non-Institutional Investors (NIIs).

• Application verification: PAN details, demat account, and payment confirmation are cross-checked.

• Allotment method: If demand exceeds supply, allotment is done through a lottery system (especially in the retail category).

• Finalization and refund: Allotment status is published, and refunds are processed for unallocated applications.

The entire process is handled by the registrar of the IPO, and transparency is ensured at each step. This structured approach ensures fairness, even in highly oversubscribed IPOs.

How IPO Allotment is Done For Retail Investors

The IPO allotment process includes receiving application data, validating applications, cross-verification, rejection of invalid applications, and more. Here, we break down each step of this process.

1. Receiving Application Data

Once the current IPO subscription period ends, the registrar receives all application data from the stock exchange. This data includes details of every applicant, the number of shares applied for, and the investor category.

2. Validation of Applications

The registrar checks each application for eligibility, ensuring correct Demat account numbers, PAN details, and that the application was submitted within the cut-off time. Invalid or duplicate applications are filtered out at this stage.

3. Cross-Verification with Depositories and Banks

Application data is cross-verified with depositories and banks to identify third-party applications, mismatched accounts, or payment issues. This ensures only genuine and compliant applications proceed to the next stage.

4. Rejection of Invalid Applications

Applications with technical errors, incorrect details, or those not meeting eligibility criteria are rejected. This step helps maintain the integrity and fairness of the allotment process by excluding ineligible or erroneous entries.

5. Grouping Valid Applications by Category and Lot Size

All valid applications at or above the cut-off price are grouped according to investor categories—Retail, NII, QIB—and organized by lot size. This helps determine the total demand for shares in each category.

6. Allotment Mechanism Selection

If the IPO is undersubscribed, all valid applicants receive the shares they requested. In case of oversubscription, the registrar uses a computerized lottery system for retail investors and a pro-rata basis for other categories to allocate shares fairly.

7. Finalization of Basis of Allotment (BOA)

The registrar, in consultation with the designated stock exchange, finalizes the Basis of Allotment document. This document details the allocation method, allotment ratios, and is published for transparency.

8. Communication of Allotment Status

Allotment advice is sent to investors via email or SMS, informing them of their allotment status. Investors can also check their status online on the registrar’s or stock exchange’s website.

9. Coordination with Banks and Depositories

The registrar notifies banks to debit the requisite amount from investors’ accounts and coordinates with depositories to credit allotted shares to investors’ Demat accounts on the scheduled date.

10. Refund Processing

For applicants who did not receive shares or received fewer than requested, refunds are processed promptly. The refund is credited back to the applicant’s bank account or ASBA-linked account.

This structured process ensures that IPO share allocation is transparent, fair, and compliant with SEBI regulations, providing equal opportunity to all eligible investors.

IPO Allotment Rules

The procedure for allotment of shares is governed by a set of rules and criteria to ensure fairness, transparency, and compliance with regulatory norms. The registrar, in consultation with the stock exchange, follows these guidelines to craft the IPO allotment rules.

1. Valid Applications Only

Applications must have correct Demat and PAN details, be submitted within the IPO window, and not be duplicates. Invalid or late applications are rejected and not considered for allotment.

2. Cut-off Price Compliance

Shares are allotted only to those who have applied at or above the cut-off price. Bids below the cut-off are automatically excluded from the allotment process.

3. Category-wise Allotment

Shares are distributed within specific investor categories—Retail, NII, QIB, Employees, and Shareholders. Each category has a reserved quota, and allotment rules differ for each group.

4. Oversubscription Handling

• Retail Category: Allotment through a computerized lottery; fair and random.

• NII Category: Split into small and big investors; rest pro-rata.

• QIB Category: Allotment strictly proportionate; no reallocation allowed.

• Employees/Shareholders: Allotment is proportionate with predefined limits in case of oversubscription.

5. Undersubscription Handling

If a category (except QIB) is undersubscribed, leftover shares may be reallocated to other categories with regulatory approval. In QIB, unsubscribed shares cannot be reallocated.

6. Minimum Subscription Requirement

SEBI mandates minimum quotas for allotment:

• 35% for Retail

• 15% for NII

• 50% for QIB in most IPOs. 

This ensures fair representation for each group.

7. Basis of Allotment Document

The registrar publishes a Basis of Allotment document, detailing how shares were allocated and the status of each investor. This ensures transparency.
Investors are notified of their allotment status via email/SMS and then credited to their demat account. These rules and criteria ensure that IPO shares are distributed fairly among eligible applicants.

What is the Basis of Allotment in IPO

For the purpose of IPO allotment, a proper document is created and published by the registrar. This is known as the Basis of Allotment (BOA). This formal document is an essential part of the entire process. This determines how shares are allocated to investors in an IPO, especially when the issue is oversubscribed.

The document is finalized by the registrar in consultation with the company, lead manager, and designated stock exchanges. Once everything is confirmed, this is then published in the leading daily newspaper to ensure everyone gets the information.

The key information that is part of this document is as follows:

• Total applications and shares applied per investor category (Retail, NII, QIB).

• Subscription rates and oversubscription ratios per category.

• Number and percentage of shares allotted per bidder group.

• Allocation ratios and the number of allottees in each category.

In addition to the above, there are certain specific details linked to each category that are also defined in the BOA. This includes:

• Total applications received for each share group

• Percentage of total applications contributed by each group

• Total shares bid for in every share group

• Share of total demand accounted for by each group

• Shares allocated to each applicant in the group

• Allotment ratio: number of successful applicants vs total in that group

• Total shares finally allotted to each share group

How to Check IPO Allotment Status

Here are the steps to check IPO allotment status online:

• Visit the NSE, BSE, or official registrar’s website allotment status pages.

• Select the IPO you applied for from the dropdown menu.

• Enter your PAN, application number, or DP/Client ID as required.

• Click “Search” or “Submit” to view your allotment status.

• You will also receive updates via email and SMS once the allotment is finalized.

Conclusion

The IPO allotment process may seem complex, but with the right understanding, you can navigate it confidently. From applying correctly to tracking allotment status, every step matters, especially when IPOs are oversubscribed. Whether you're a first-time investor or an experienced applicant, knowing the procedure for allotment of shares helps you stay informed and prepared.

FAQs

Q1. How is an IPO allotted when it is oversubscribed?

When an IPO is oversubscribed, allotment is done based on investor categories. For retail investors, a computerized lottery system is used to ensure fair and random allotment. For NIIs and QIBs, shares are allotted on a proportional basis.

Q2. How does SME IPO allotment work?

In SME IPOs, the allotment process is similar to mainboard IPOs but follows different eligibility norms and investor criteria. Shares are allotted based on the application size and investor type, with oversubscription handled via lottery or pro-rata, depending on the rules set in the offer document.

Q3. What is the basis of allotment in an IPO?

The Basis of Allotment is an official document published after the IPO closure. It shows how shares were allotted to investors across categories, the number of applications received, allotment ratios, and the total shares allotted per group.

Q4. What happens if an IPO is not fully subscribed?

If an IPO is undersubscribed, all valid applicants receive the shares they applied for. Any unsubscribed shares from one category (except QIB) may be reallocated to others with SEBI’s approval. If the minimum subscription requirement isn’t met, the IPO may be withdrawn.

Q5. At what time is IPO allotment done?

IPO allotment is generally finalized within 5–7 working days after the issue closes. The allotment status is updated on the registrar’s website and stock exchanges. Timings vary but are usually completed by the evening on the day of release.

Q6. How to know if the IPO is allotted or not?

Investors can check their IPO allotment status by visiting the registrar’s website, BSE/NSE allotment page, or platforms like Rupeezy. You need your PAN, application number, or DP ID to check. You’ll also get updates via SMS or email from the registrar.