How does the IPO allocation process happen?

If you’ve ever applied for an IPO and wondered what happens next, understanding the IPO share allocation process can help make sense of it all. The process might seem complicated, but in reality, it’s structured to ensure fairness and transparency for every type of investor.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Once the IPO application window closes, all bids are collected and verified. The company, along with its registrar, reviews the total demand and compares it with the number of shares available. When the issue is oversubscribed, meaning there are more bids than shares, a structured system determines who gets what. This is where knowing how IPO allotment works for investors becomes useful.

Investors are grouped into categories: Qualified Institutional Buyers (QIBs), Non-Institutional Investors (HNIs), and Retail Investors. Each segment receives a defined percentage of the total issue. QIBs, like mutual funds and banks, are usually allotted shares on a proportionate basis according to the size of their bids. HNIs also follow a proportionate allotment, while retail investors typically enter a lottery-based draw when there’s oversubscription.

To ensure fairness, the registrar to the issue, a SEBI-registered entity, oversees the process. They handle everything from verifying payment to finalising allocations. These are the steps involved in IPO share distribution, which ensure that no single investor or group receives undue preference.

Once the allotment is finalised, details are published publicly. Successful applicants receive their shares directly in their Demat accounts, while refunds are issued automatically to those who didn’t get allotment. This process usually takes a few working days after the closing date.

The transparency of this system is its major attraction. Each action is recorded, and the investors can verify their share allotment status on the web. It does not matter whether you are a newcomer to the market or a regular player, it is still a good idea to get acquainted with this mechanism as it is the backbone through which shares are later transferred to the secondary market.

To put it briefly, the IPO allocation procedure looks complicated but its conception allows no one to be treated unfairly or inequitably. The moment you get to know the share division and distribution, you will find the whole process much more predictable and systematic.