What is the Allotment of IPO?
Any IPO issue is open for a certain number of days as per the SEBI guidelines depending upon what type of price issue it is. For –
- Fixed price IPOs – The bid can be open from 3 to 10 days.
- For book built IPOs – In this case, the bid can be open for 3 to 7 days. But in case the price range is revised, it can be open for 3 more days, giving in some more time for the investors to make or change the bid.
Once the bids are closed the next step is to allocate the shares for the applications received. It means that shares will be given to you as per your bid, price etc.
This is done within 15 5o 30 days of closure of the issue, again depending upon the type of issue it is. However, it does not mean that all the applicants will have the shares allocated.
How the Shares are Allocated?
For different types of IPO issues SEBI has set separate norms for allocation of shares.
- For Fixed Price Shares – 50% of the shares are reserved for the retail investors and the rest is available for the HNI (high net worth Individuals) and Institutions or corporate bodies.
- For Book Built Shares– Here there are two scenarios.
- When 100% of the shares are issued through book built process – In this case, 35% of the shares should be available for allocation for the retail investors. 15% of the shares should be available for HNIs and the rest 50% should be available for the Institutions.
- When there is a compulsory book built process – In such a situation, the maximum portion that is 75% of t.he shares to be allocated should be available for the Institutions. 15% for the HNIs and the remaining 10% for the retail investors, making them the smallest of all types of investors.
After the issue is closed and all the applications are submitted, back end starts to work.
All the applications are scrutinized. These days this is done by the help of computers. Some of the applications get rejected.
So, one has to be very informed and very careful at the time of application of any IPO.
There can be many reasons for Rejection of an Applications. Some of them are mentioned Below.
- Inactive status of your Demat account
- Incorrect PAN, Demat account number or other important details
- Applicant is a minor, and the application is not made by the guardian
- Insufficient amount as per the bid made
- More than one forms received with same Demat account number or same first holder’s name.
Once the applications are scrutinized then there can be two types of situations for the company. Either the IPO issue is under subscribed or it is over subscribed.
Under subscription means the number of shares that were issued by the company are more than the number of applications received by them.
On contrary over subscription means there are a greater number of applications received by the company than the number of shares they have to sell.
The situation of exact subscriptions is very rare.
- 1. The case of Under Subscription –
There can be multiple reasons behind the less subscription of the shares, like high price of IPO, marketing and advertising issues, company not worthy enough and investors can understand it etc.
In such a situation full allotment is done for every accepted application. This also implies that the company is not able to raise as much capital from the market as it had planned, which can further affect its growth.
Now, in case a company has floated the IPO issue and on the date of closure of the issue it could not receive at least 90% of subscription then as per the SEBI rules, the company has to refund all the money to the investors and the subscription gets closed.
At that time issuer company does not get any money and IPO becomes a failure step for them.
- 2. The case of Over Subscription –
Over subscription is a blessing. It shows a positive response from the market for the company. It means that the company can raise more that required or expected capital from the market.
There can be either a small oversubscription or a large oversubscription. Small oversubscription means that at least all the received acceptable applications can get 1 lot of shares each.
And after this the balance shares can be allotted using different ways as per the type of investors.
But in the case of large oversubscription, the number of applications received is so high that not even 1 lot can be allocated to all of them.
In such cases, as per SEBI, a computerized lucky draw is done. Now this becomes fully uncertain that who will get how many shares.
From the prospective of underwriters, in the case of large over subscription, they have an authority to issue 15% more shares than earlier planned and announced.
How to Check the Allotted Shares?
Similar to other processes, this also depends on what type of IPO it was. The SEBI rules differ as per the type of issue.
- For Fixed price issue – The price for the shares to be allotted is already known. The allotment is done only after 30 days of the closure of the issue and the information is made available through public announcements.
- For Book Built issue – Once the price is decided and the allotment is done, a public announcement is made to inform the investors about the allotment. The public announcement shows the number of shares allotted to each investor along with the amount payable (as per the decided price).
This information is also made available on the websites of NSE and BSE. For checking it from NSE or BSE one need to fill in the details like PAN, application number, issue name etc.
Below is a snapshot of how to check it on BSE.
Below is a snapshot of how to check it on NSE.
Recently, all the IPOs are through book built process, so checking the status of allotment of shares becomes very easy. One can directly open BSE/NSE and check for the status.
Stockquantum was founded by Dharmendra Mukati in 2018. I am a Trader and Investor in the last 10 years.
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