How are shares allotted in IPO?

Vivek Investment > English > How are shares allotted in IPO?

Before understanding the process of IPO allotment, let us first understand what is the category of IPO investors.

There are 3 types of investors in an IPO:

  1. Qualified Institutional Buyers (QIB):
  2. Non Institutional Investors (NII)/ High Net Worth Investors (HNI)
  3. Retail Investors: 

 

  1. Qualified Institutional Buyers:- These institutions make investments for their own investment and for the people. Such as Mutual Fund, Pension Fund, Provident Fund, Insurance Company.  QIBs invest a lot of money. There is a quota reserved for all categories for IPO. In IPO, maximum 50% quota is reserved for QIB.
  2. Non Institutional Investors or HNI :- This category includes individual investors, NRI, HUF etc. NII can apply for an IPO of over Rs. 200,000. 15% quota for IPO is reserved for non-institutional investors. 
  3. Retail Investors:- Retail investors are you and me who apply for less than Rs 200,000 in IPO. At least 35% quota is reserved for retail investors in an IPO.

 

               Allotment of the shares is processed a few days after the bidding of the shares in the IPO. What is OVERSUBSCRIBE in IPO? OVERSUBSCRIBE means that if there is a demand for more shares than the number of shares the company brings in the market, it is called oversubscribe. E.g. If a company bids 100,000 shares to retail investors for an IPO and the demand for shares is 200,000 shares, it is called oversubscribe.

The more oversubscribed an IPO is, the less likely it is to get an IPO.

There have been times when you bid for an IPO but you don’t get it, but your friend or relative gets it, so it’s all a lottery system. 

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Thank you. 

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