IPO allotment process: Steps, rules & how to check your status
Investing in an initial public offering is an exciting opportunity for retail and institutional investors looking to enter the stock market. However, getting shares allotted in an IPO is not always guaranteed. The IPO allotment process follows a structured procedure regulated by the Securities and Exchange Board of India to ensure transparency and fairness.
Understanding how the process works, the rules that govern it, and how to check your allotment status can help investors plan their investment strategies effectively. Many factors, such as demand, subscription levels, and the cut off price in IPO, determine whether an investor receives shares or not. This article provides a detailed guide on how IPO allotment works, the steps involved, and how to track the allotment status.
What is the IPO allotment process?
The IPO allotment process refers to the method by which shares are allocated to investors who have applied for an IPO. Since IPOs often receive more applications than the available shares, a fair distribution process is used to determine how shares are allocated among investors. The allotment process varies based on investor categories, such as retail investors, qualified institutional buyers, and non-institutional investors.
Key factors influencing IPO allotment
- Number of shares available – The total number of shares allocated to retail and institutional investors.
- Subscription levels – The demand for the IPO, especially in the retail and high-net-worth individual categories.
- Cut off price in IPO – The price at which shares are finally allotted to investors within the price band.
- SEBI regulations – Rules and guidelines that ensure a fair and transparent allotment process.
Steps involved in the IPO allotment process
1. Submission of IPO applications
Investors apply for IPO shares through their stockbrokers, banks, or online trading platforms. They can choose to bid at a specific price within the price band or apply at the cut off price in IPO, which ensures they have a higher chance of getting an allotment.
2. Subscription period closes
Once the IPO subscription period ends, the company collects and verifies all applications. The demand for shares is evaluated based on investor interest and category-wise subscription levels.
3. Basis of allotment is determined
The allotment process is conducted based on SEBI guidelines and the subscription levels in different investor categories:
- Retail investors – If the IPO is oversubscribed, allotment is done through a lottery system.
- Non-institutional investors – Allotment is based on the proportion of shares applied for.
- Qualified institutional buyers – Shares are allotted on a discretionary basis as per SEBI rules.
4. Allocation of shares
After finalising the basis of allotment, shares are allocated to successful applicants. Investors who do not receive shares get a refund of their application amount.
5. Credit of shares to demat accounts
The allotted shares are credited to investors' demat accounts before the listing date. Investors can check their holdings through their broker or depository participant.
6. Listing of shares on the stock exchange
Once the shares are credited, they begin trading on the stock exchange, allowing investors to sell or hold them based on market conditions.
What is the cut off price in IPO?
The cut off price in IPO is the final price at which shares are allotted to investors. When a company launches an IPO, it sets a price band within which investors can bid for shares. Retail investors have the option to select the cut off price, meaning they agree to pay the final price decided by the company.
How the cut off price affects allotment
- Higher chances of allotment – Investors bidding at the cut off price increase their chances of receiving shares.
- Price determination – The final IPO price is decided based on demand and subscription levels.
- Refund process – If the final cut off price is lower than the investor’s bid, the excess amount is refunded.
How to check IPO allotment status
Investors can check the IPO allotment status through various channels. Once the allotment process is complete, they can verify whether they have received shares.
1. Check through the registrar’s website
IPO registrars, such as Link Intime and KFin Technologies, provide online allotment status checks. Investors can visit the registrar’s website and enter their application details to check their status.
2. Visit the stock exchange website
Both the Bombay Stock Exchange and the National Stock Exchange provide IPO allotment status updates. Investors can check their allotment status by entering their PAN or application number on the exchange’s official portal.
3. Check through the broker or bank
Stockbrokers and banks notify investors about IPO allotment through email and SMS. Investors can also log in to their trading accounts to check the status.
4. Verify in the demat account
Investors can check whether shares have been credited to their demat account by logging in through their depository participant (NSDL or CDSL). If the shares are not credited, it means the allotment was unsuccessful, and a refund will be processed.
Rules governing the IPO allotment process
Several SEBI rules regulate the IPO allotment process to ensure fairness and transparency.
1. Proportional allotment for non-institutional investors
Investors applying for large volumes of shares receive allotment in proportion to their application size rather than a lottery system.
2. Lottery system for retail investors
If the retail category is oversubscribed, allotment is done through a computerised lottery to ensure fairness.
3. Minimum allotment guarantee
Retail investors are given priority to ensure that at least one lot of shares is allotted when possible.
4. Refund rules
Unsuccessful applicants receive a refund within a stipulated time frame through their bank accounts.
Common reasons for IPO allotment failure
Several factors may lead to an investor not receiving shares in an IPO.
- High demand – If an IPO is heavily oversubscribed, not all investors receive allotments.
- Incorrect application details – Errors in PAN, demat account, or bank details can lead to rejection.
- Insufficient funds – If the application money is not blocked successfully, the bid may be rejected.
- Bidding at a lower price – Investors who bid below the cut off price may not get shares if demand is high.
Conclusion
The IPO allotment process is a crucial step for investors looking to participate in public offerings. Understanding how shares are allotted, the importance of the cut off price in IPO, and the steps to check allotment status can help investors make informed decisions.
Since IPOs are often oversubscribed, investors should apply strategically, bid at the cut off price, and ensure their application details are correct. By following SEBI rules and using reliable sources to check their allotment status, investors can improve their chances of successful IPO participation. Whether investing for short-term gains or long-term growth, knowing the IPO allotment process is essential for every investor.
