How does the allotment process work if the IPO is oversubscribed?

How does the allotment process work if the IPO is oversubscribed?

The allocation of shares to investor categories is reserved in every IPO. When an IPO receives more applications (bids) for shares than the total number of shares available, it's called an oversubscribed IPO.

Here is how the allotment process typically works in such scenarios:

Demand vs. Supply: Imagine a company is offering 1,00,000 shares, but investors apply to buy 2,00,000 shares. It is a 2x oversubscription.​

Allocation Method: Everyone can't get shares. There are a few methods for allotment:

·        Allotment to Retail Individual Investors (RIIs): The maximum amount that retail investors can apply per IPO is Rs. 2 lakh. The total number of equity shares available for allotment to RIIs is divided by the minimum bid lot. It gives the maximum number of RIIs who can be allotted the shares.

·        For example - If shares worth Rs. 20 lakh need to be allotted to the retail segment and the minimum lot size is Rs. 10,000, only a maximum of 200 applicants will be allotted the shares with the minimum lot of Rs. 10,000.

·        Lottery System: This is a computerised process like a lucky draw. Each valid application gets entered into the system, and allotment happens randomly.

·        SEBI Regulations: The Securities and Exchange Board of India (SEBI) regulates IPOs in India and mandates that retail investors receive at least one lot of shares if possible.



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