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Every IPO has a minimum 35% shares reserved for retail investors. The IPO basis of allotment to retail investors depends upon the number of applications received under the category; whether undersubscribed or oversubscribed.
Allocation to retail investors, when the issue is oversubscribed
First, the maximum number of allottee is calculated using the below formula;
Suppose a company has offered 10 lakh shares for retail investors and the lot size is 1000 shares. So the maximum number of retail applicants who will get allotment is 10,00,000/1000 = 1,000 applicants.
Lottery: If the issuer company receives higher number of applications than shares offered, shares will be allotted through draw of lottery. Say, in the above example, 900 applications were received for 15 lakh shares, every retail investor will get one lot, and remaining shares will be allotted on pro-rata basis.
Allotment to retail investors, when the issue is oversubscribed
When the company receives less number of applications from retail investors than shares offered, it is called undersubscribed IPO. In an undersubscribed issue, all the retail applicants will receive allotment for shares they have applied for.
Facts You Must know;