Process of IPO Allotment Share
Hello everyone ipo or
initial public offering a method through which company raise
money from the public and in return issue company shares is gaining momentum as an
investment option in india if one invests in any firm through ipo after carrying out a detailed analysis about the concerned firm and its growth prospectus then this
investment route can prove beneficial for you especially if you are starting out in the
stock market once the shares are allotted to people and the firm gets listed on the stock exchange the investors become
shareholders in the concerned firm the process is simple for investors but most of us are unaware of the process of share allotment in an ipo in this video we are going to discuss the same to begin with let us first understand the types of investors who invest in ipo before discussing the categories remember that when an ipo is launched every investor category has a reserve quota under it the first category in this list is qualified institutional buyers or qib here qib refers to the organizations who invest for people or for their
investment portfolio for instance pension funds provident funds mutual funds
insurance firms etc one of the most striking features of sip is that they invest with a huge amount of capital and Sip quota cannot exceed 50 in an ipo this category is followed by non-institutional
investors or high net worth investors it includes all the individual
investors etc
under this category one has to make a bid of more than two lakh rupees minimum 15 percent quota of the ipo is reserved for this category of investors next in this list is retail investors here retail investors refers to common people like you and me making a bid in an ipo in this category investors usually make a bid of less than 2 lakh rupees if your bid crosses the figure of 2 lakh then you will fall into the category of his minimum 35 percent quota off quota is reserved for this category once the bidding is done on the basis of these categories the allotment process takes place in this section we will discuss the step-by-step process of the stain for those who don't know one cannot buy shares in an ipo in number but in terms of a lot the slot size is decided by the firm prior to the launch of the ipo let us take an example of company abc that plans to bring its fixed price issue it has decided the price of one share as 1000 rupees and the size of one lot is 14 shares this implies one lot will be your 14 000 rupees as per the rule if you wish to invest in an ipo you need to make a bid of minimum one lot continuing with the same example if you bid between one lot to 18 lot in the ipo of abc you will be categorized as a retail investor and you need to apply under the same category this is because up to 18 lots the price of your bed will be less than 2 lakhs secondly if you bid for more than 18 lots then you'll be categorized as a high net worth investor and you need to apply under the his category as your investment will cross the figure of 2 lakh in this case now we often come across this term over subscribe for instance an ipo rate was oversubscribed by more than 111 times but what does this term imply here over subscribe implies a situation when the bid of shares made by any investor is more than the shares issued by the company for example if any company has reserved 1 lakh shares for retail investor category and if the total bid is made of 2 lakh shares then it is stated that retail category gets oversubscribed by two times but the allotment will be done with the number of shares reserved for retail category only let us suppose firm abc is selling its 10 lakh shares at a price of 1000 per share and raising hundred crores from investors through ipo now out of 10 lakh shares 35 of it that's 3.5 lakh shares is reserved for the retail category now one lot size is of 14 shares and 3.5 lakh shares would equate to 25 000 lots thus it can also be said that 25 000 lots of abc are reserved for retail investors now here two situations can occur first if the total bid made by investors is equal to 25 000 lots then each investor will get the same number of lots which they made the bid for secondly if the bid made is more than 25 000 lots let's say 35 000 lots then at first each investor will get one lot then the leftover lots will be proportionately divided among the investors who have bid for more than one lot there may arise a third situation where for 25 000 lots the bid made can be huge like one to two lakhs allotting even one share to an investor is not possible then under such circumstances the allotment is done on the basis of a lottery if it boils down to this situation then no matter how many lots the investors have made their bid for they get a maximum one lot only thus in this situation whether you'll be allotted the shares or not depends on your luck the allotment done on a lottery basis is completely computerized or automated thus more is the over subscription of an ipo lesser is your chance of shares getting allotted moving to the h i category if over subscription is done in the h i category then the reserved shares are allotted proportionally this means the total number of shares applied by an investor is divided by the number of times the shares are oversubscribed by the hni category and this is how the proportion gets divided for instance if any company has reserved 50 000 shares for hni category and you made a bid of 1000 shares now this category gets over subscribed let's say by four times then you'll get 250 shares only here you apply it for 100 shares and the over subscription is four times then one thousand will be divided by four that equates to 250 shares once the allotment process is done within seven days the concerned company stock gets listed on the stock exchange and this finished the ipo allotment process
