What is the IPO Allotment Process?

The IPO allotment procedure is the method used for distributing the shares of the issuing company to investors who have previously applied for them during the IPO (initial public offering). There are several steps involved in the distribution process, right from the application to bid validation and the final allotment. 

Investors apply for shares through their brokerages or online platforms, specifying the bid price and share amount. The registrar then handles the allotment process, validating and categorising applications and making allotment decisions. Finally, the share allotment is decided based on demand and carried out via lottery/pro rata systems. The basis of allotment (BO) is also made public after the end of the subscription period. Sounds interesting? Let’s learn more about how IPO shares are allotted below. 

Why is IPO Allotment Necessary?

IPO allotment is the method of distributing the issuing company's shares to the investors. It is important for several reasons, including: 

• Fair distribution of shares, particularly in the case of oversubscribed IPOs
• Transparent allotment process overseen by the stock exchange and registrar
• Building investor confidence and encouraging more participation in IPOs
• Helping companies raise capital for future operations and growth targets through share allocation to a wider investor range
• Meeting SEBI guidelines and other compliance needs 

Types of IPO Investors

There are several types of IPO investors, including the following: 

• RIIs (Retail Individual Investors)
  They are the individual investors who participate in IPOs, often putting in smaller amounts to meet personal goals. 
• NIIs/HNIs
  High-Net-Worth Individuals or Non-Institutional Investors are those investing more than a particular amount. This category may include trusts, companies, and others who put in more than RIIs and have specific investment goals. 
• QIBs
  Qualified Institutional Buyers are entities like insurance companies, pension funds, mutual funds, banks, etc. They have to meet several regulatory guidelines set by SEBI and other authorities to deploy investments in IPOs. 
• Anchor Investors
  They are major institutional investors like foreign portfolio investors, mutual funds, and banks, who are invited to invest in the IPO before it opens to the public. These investors usually put in a significant chunk of money and may also influence the IPO price. 

Step-by-Step IPO Allotment Process

Here is a brief look at the general IPO allotment procedure: 

• Application
  Investors submit applications for IPO shares via brokerages or other online platforms. 
• Subscription Period
  The IPO stays open for a specific duration (3-5 days in most cases), during which investors may submit their bids. 
• Closure & Verification
  The subscription period ends, and the registrar verifies the bids, rejecting invalid/duplicate ones. 
• Allocation & Categorisation
  Investors are first categorised, and shares are then allocated as per SEBI guidelines. 
• Allotment Finalisation
  In case the IPO is undersubscribed, all the applicants will receive their requested shares. However, if it is oversubscribed, allotment will be done through the pro-rata or lottery system. 
• Share Credits
  All the allotted shares are credited to the demat accounts of investors (mostly within a few working days after the closure of the IPO). 
• Refund
  Those investors who did not receive any allotment of the shares shall receive their subscription amounts. 

Basis of Allotment

BO (basis of allotment) is an important concept in the IPO process. It is the system by which shares are distributed among investors. You can also think of it as the guidelines or rules used by the registrar to allocate shares in case the IPO is oversubscribed. The BO is what ensures fair and transparent share distribution among applicants. It determines how many shares each investor gets, based on oversubscription, investor categories, demand, etc. 

Shares are usually allocated on the pro-rata (proportionate allocation) system or through a lottery in case of an oversubscribed IPO. The BO is also made public later, enabling investors to check allotment status and understand how the shares have been distributed. 

When and How to Check IPO Allotment Status

You can track the IPO allotment status once the application is submitted. You can visit the NSE or BSE website, find the IPO section and then enter your application number or PAN to check the same. There are several IPO registrars (KFintech or Link Intime) that offer allotment details as well, while you can find the status at the online platform of your brokerage or investment partner as well.

The allotment mostly happens within 3-5 days after the closing of the IPO. Checking the status is a seamless affair on most platforms. For example, if you are investing with Groww, here are the steps you need to follow: 

• Find the IPO section in your Groww app 
• Find and choose the IPO applied for
• View the updated allotment status on the screen 

You will also receive an email notification from Groww with your allotment status once the process is finished. 

What Happens After Allotment?

Once allotment is done, you can continue to check the status accordingly. The document called the Basis of Allotment (BO) is then released by the registrar, containing valuable details for you to examine. Shares are credited to the demat accounts of allottees, and refunds are processed to those not receiving allotments. The listing finally takes place after these procedures are completed. 

You should confirm the share allocation and also ensure that shares are credited to your demat account. In case you are not allotted any shares, expect your refund to be processed within a few working days. 

Factors Affecting IPO Allotment Chances

Some of the factors affecting your IPO allotment chances include: 

• Number of applications received by the issuing company
• Demand in multiple investor categories 
• Issue size 

You can maximise your chances by applying through multiple demat accounts of family members and bidding at the highest price range. Make sure that you enter all details correctly while applying and choose UPI payments for quicker processing and approvals. Retail investors have a better chance of allotment when they apply for minimum lot sizes.