Are you worried about the IPO you subscribed to recently? Do you know how the IPO allotment process works and whether your subscription to the IPO will bring out results or not? Are you aware of the fact that the company checks to allot shares to the IPO subscribers? Do you want to check your IPO allotment status?
So, many questions might crowd your brain when you subscribe for an IPO and one of the most important of them all is about allotment of the shares you just subscribed for.
So, here in this article, you will read about the complete IPO allotment process, different processes of allotments, and also about allotment status inquiry.
What is the IPO allotment process?
An IPO is issued for raising capital from the investor and investors subscribe for the same for their investment goals. This is a two-way process and so is the allotment process as well. When an IPO is issued, it can be over-subscribed, under-subscribed or fully subscribed. Once the subscription process is over, the issuing company scrutinizes the subscription and then finally allot the shares to the subscribers. This means the issuing company credits the shares to the investor’s Demat account. The process of crediting the shares to the investor’s Demat account can be termed as allotment of shares in simple terms but it includes some complicated procedures which depend on the type of subscription.
How companies allot shares to the IPO subscribers?
The allotment of shares by the company depends on various factors. There are different types of investors and the process or criteria for subscription differs for each of them.
- QIBs or Qualified Institutional Investors: These are the organizations or firms which invest money in bulk in different other companies’ shares and investment vehicles. So, issuing companies generally target these QIBs to get a high rate of subscription for their IPOs. The issuing companies often reserve around 50% of the IPO issue for these QIBs as well depending on the size of issue.
- Retail Investors: Retail investors are those who are amongst us only and generally can invest up to Rs. 2 lakhs in an IPO, if he or she wants to subscribe for it. The issuing companies reserve around 15% of the IPO issue for the retail investors as retail investors do not show much faith in IPOs as it is a bit too risky investment for them.
- Non-institutional Investors or NII: If a retail investor invests more than Rs. 2 lakhs in a single IPO issue, then that investor will have a promotion in his or her status and will be called as Non-institutional investors. In simpler terms, these are the High Net worth Investors or HNIs. They are individual investors investing quite a high capital in IPOs because they have the means to assess the risk of the IPOs and also have the capital for investment and taking that risk. The issuing companies leave 15% of the IPO issue for these HNIs in general.
Now, the allotment process depends on the type of subscription and there are generally two types of subscriptions in real.
- Under-subscription: In this case, the company credits the total number of shares that an investor has subscribed to. Since there is a fewer number of shares subscribed than the number of shares offered for subscription, the company can issue an equal number of shares to the investors.
- Over-subscription: When an IPO is over-subscribed, then the issuing company needs to decide how to issue shares to everyone in the equal ratio of their subscription or otherwise.
So, the complication in allotment of shares arises when there is over-subscription, though IPO is termed as a good IPO when it is oversubscribed by 2-3 times.
The issuing company generally allots the shares to the retail investors in this scenario via a lottery draw process and to the QIBs and the HNIs by the Pro-rata allotment basis. Retail investors also come under this Pro-rata allotment when the over-subscription is not huge.
Pro-rata means proportionate and thus by Pro-rata allotment, it means that the shares are allotted to the investors in a proportion. It is generally an equal distribution between all the investors based on their subscription. It means that the shares are allotted in a ratio of the number of shares subscribed for.
In reality, it is done according to a lot of shares. It means a lot of shares contain more than one single share, say, for example, 5 shares or 10 shares per lot. So, when Pro-rata is applied, one lot to each of the investors is allotted, and the remaining lots are issued in proportion to their subscription.
Example: ABC and XYZ are two HNIs who have subscribed to AZ Company who’s IPO are oversubscribed. Now ABC has subscribed for 300 shares and XYZ for 500 shares. Each lot consists of 50 shares. So, firstly, both the companies will get one lot each of 50 shares. Now the remaining slots will be allotted in 3:5 ratio to both the investors.
Under ASBA or Application Supported by Blocked Amount, the applicant’s bank account – savings or current is blocked for the amount equivalent to the number of shares he or she subscribed for. The amount doesn’t get debited until the issuing company credits the shares to the applicant's Demat account. So, if the applicant’s subscription is not approved for the IPO, then nothing gets debited from his or her account.
This process was initiated by SEBI for IPOs, FPS, Rights issues and others. For this, the applicant need to apply for the IPO through ASBA, one can make e-application for this process as well and the bank will get the authorization to clock the amount for the IPO subscription but not debit the same unless the allotment is finalized or the issue fails or get withdrawn.
How you can check your allotment status?
In India, you can check your allotment status via 3 different ways –
- You can check it with the Registrar. The registrars are the ones who are responsible for the IPOs, they are an individual institution. They take care of the allotment process and the application you give for the subscription of the shares. So, once you apply, you can then check on the registrar’s website about your IPO allotment status.
- Another IPO allotment status checker is the broker’s website or the SMS and the emails sent by them. Yes, the broker who processes the IPO is bound to tell you about the allotment status.
- Depositories and the Stock exchanges can be another source for the information related to the allotment status.
For checking the allotment status you would need
- PAN Card Details
- Depository Participant ID
- Client ID
- Bid Application Number
So, while applying for an IPO next time, think whether you want to do it with ASBA or not. The allocation of shares depends on the subscription, so after applying nothing is really in your hand, so stop worrying and finally, to check the allotment process you have different ways in front of you, so, check it anytime and keep a track of your investments.
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