The Indian stock market has seen a growing number of Initial Public Offerings (IPOs) as more companies go public. For retail investors, IPOs offer an opportunity to invest in companies at their initial stages of being listed on the stock market. But how does IPO allocation work in India? Let’s break it down.
What Is IPO Allocation?
IPO allocation is the process through which shares are distributed among investors who apply during the IPO subscription period. Depending on the type of investor—retail investors, High Net Worth Individuals (HNIs), or institutional buyers—the process of allocation differs.
Types of Investor Categories in IPOs
- Retail Individual Investors (RIIs):
- Retail investors can bid up to ₹2,00,000 in an IPO.
- Shares are allotted based on a lottery system if the IPO is oversubscribed.
- High Net Worth Individuals (HNIs):
- HNIs are non-institutional investors who bid more than ₹2,00,000.
- Shares are allocated proportionally, depending on the oversubscription level.
- Qualified Institutional Buyers (QIBs):
- QIBs include institutions like mutual funds, banks, and FIIs.
- They are allotted shares on a discretionary basis.
How IPO Allocation Works in India
Step 1: IPO Subscription
During the IPO subscription period, investors submit their bids through a stockbroker or online trading platforms. The price band and lot size are predefined by the company.
Step 2: Bidding Process
Investors can bid within the price band by specifying:
- Number of lots: Minimum quantity of shares one can apply for.
- Price per share: Either at the cut-off price or a specific price in the band.
Step 3: Oversubscription and Under-subscription
- Oversubscription: If the demand for shares exceeds the supply, the allocation is decided by SEBI rules. Retail investors are chosen via a lottery system, while other categories may receive proportional allotment.
- Under-subscription: If the IPO receives fewer bids than the shares available, the remaining shares may be reallocated to other categories.
Step 4: Basis of Allotment (BoA)
After the bidding closes, the company decides the final issue price and publishes the Basis of Allotment, specifying:
- The number of shares allotted to each investor category.
- The allotment method.
Step 5: Refunds or Demat Credit
- Successful bidders have the allotted shares credited to their Demat account.
- For unsuccessful bidders, the blocked funds are released back to their account.
Key Rules Governing IPO Allocation in India
- Proportional Allotment: For HNIs and QIBs, shares are allocated in proportion to their bids.
- Lottery System: For retail investors, allotment follows a randomized lottery if oversubscribed.
- Regulatory Oversight: SEBI ensures a transparent allocation process to protect retail investors.
How to Increase Your Chances of IPO Allotment
- Bid at the Cut-Off Price: Select the cut-off price option to increase your chances of allotment.
- Avoid Last-Minute Bids: Apply early during the IPO subscription period to avoid technical issues.
- Apply Using Multiple Demat Accounts: Applications from different accounts under family members’ names can increase your chances.
- Choose Smaller IPOs: Smaller IPOs often have a higher success rate due to lower oversubscription.
Conclusion
Understanding the IPO allocation process in India can help investors navigate the system better and improve their chances of getting shares. Whether you are a retail investor or an HNI, the IPO market offers a gateway to investing in high-potential companies.
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