What is the procedure for IPO allotment?

For many investors, the process that follows after applying for a new issue can seem like a bit of a mystery. Understanding the IPO allotment procedure explained in clear terms can make the experience far less confusing. Essentially, the allotment is the method through which a company and its registrar decide who gets how many shares after an IPO closes.

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When an IPO opens, investors place their bids within the announced price band. Once the subscription window closes, all the bids are compiled, and the total demand across investor categories, such as Qualified Institutional Buyers (QIBs), High Net-Worth Individuals (HNIs), and Retail Investor, is reviewed. This is the first major step in understanding how the IPO allocation process works.

The company and its lead managers then determine the final issue price, often referred to as the “cut-off” price, based on demand. After that, the step by step IPO allotment process begins. The allotment differs slightly depending on whether the issue is undersubscribed or oversubscribed. If an IPO receives fewer applications than available shares, all valid applicants generally receive full allotment. However, in oversubscription cases, a computerised lottery system is used for retail investors to ensure fairness, while HNI and QIB allotments are done proportionately based on the size of bids.

The registrar to the issue handles this entire process, ensuring transparency and regulatory compliance. Once the allotment is finalised, the company notifies investors through email and SMS. Shares are then credited to successful applicants’ Demat accounts, and refunds are initiated for those who didn’t receive allotment.

Overall, the allotment procedure is designed to ensure fairness, order, and trust in the system. It gives every investor  whether small or large, an equal and transparent chance to participate in a company’s public offering, maintaining market integrity and investor confidence in the process.