Today, the craze of investing in Initial Public Offering (IPO) has increased. Especially retail investors have become addicted to it, once their IPO is released, their expectations increase even more. Some people have even opened demat accounts in the names of several family members just to apply for IPO.
But when shares are not allotted even after applying for several IPOs, then questions arise in the mind whether there is some irregularity. If you also apply for IPO, then you would want to know under which process the allotment is done, so that whoever got it, knows under which rule. There are also such people who always complain that a good IPO never comes out.
Do you also have this complaint regarding IPO?
Some people complain that they have not been allotted any good IPO yet, whereas their friend got shares in a good earning IPO in the very first attempt. They want to know what is this system?
Actually, investors want to understand the process of IPO allotment in detail. Because the IPO of a good company is always oversubscribed, that is, the number of applications received from investors is many times more than the number of shares available in the IPO, then shares are not allotted to everyone.
According to SEBI rules, a retail investor can bid up to a maximum of Rs 2 lakh in a Mainboard IPO. However, a minimum bid is required for this. This means that if a lot in an IPO is of 15 shares, then you must bid for at least 15 shares.
If the number of shares offered in the IPO is equal to the number of applications received, then almost all the investors get shares allotted in the IPO. But when the IPO gets oversubscribed then the allotment becomes a bit complicated. In such a situation, there are some rules for the allotment process, which are followed.
When IPOs are filled many times over
IPO oversubscription simply means that the number of applications received is more than the number of shares available. In such a situation, the number of retail investors to whom shares are allotted is calculated by dividing the number of equity shares available for allotment. That is, shares are allotted to investors on a proportionate basis.
Retail investors who get allotment in IPO, definitely get at least one lot. That is, bidding for lesser lots can prove to be detrimental for the investor in case of high subscription. That is, the chances of getting IPO allotment are less. Therefore, applying for more and more lots in IPOs of good companies increases the chances of getting shares allotted.
This process of allotment
Apart from this, lucky draw is also used for share allocation. Today, many investors bid from different demat accounts in the name of their family members, so that the share can be allocated in anyone’s name. When you apply for IPO from multiple accounts, then the chances of share allocation increase. Only a demat account is required for application, which is connected to a bank or UPI.
In case of oversubscription, the allotment of shares happens in this manner. For example, if the IPO of company M is oversubscribed three times. That means the number of applications received is three times that of the number of shares offered. In simple words, there are three claimants for one share. In such cases, the allotment of IPO is done through a computerized draw.
What is IPO?
When a company offers its shares to the public for the first time, it is called an IPO. Through IPO, the company collects funds and spends that fund in the development of the company. In return, people who buy the IPO get a stake in the company. The shares allotted in the IPO are usually listed on stock exchanges like BSE or NSE. Where people can easily buy and sell these shares.
Source (PTI) (NDTV) (HINDUSTANTIMES)