How Does IPO Allotment Work When It's Oversubscribed?

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Applying for an Initial Public Offering (IPO) can be exciting, but sometimes the IPO gets more applications than the number of shares available. This situation is called an oversubscription. When this happens, the registrar uses a lottery system to decide who gets the shares. Let’s understand this in a simple way!

What Is Oversubscription?

When more people apply for shares than the company has to offer, it’s called oversubscription. For example, if a company is offering 10,000 shares but receives 50,000 applications, it is five times oversubscribed.

In such cases, it’s not possible to give shares to everyone. To manage this, the registrar conducts a lottery to decide which applicants will get shares.

Example to Explain IPO Allotment Process: 

Imagine a company is offering 6 shares in an IPO, and 8 people apply for different quantities of shares:

Applicant	Shares Applied
Applicant 1	1
Applicant 2	2
Applicant 3	2
Applicant 4	3
Applicant 5	4
Applicant 6	5
Applicant 7	1
Applicant 8	2
Total	20

Since there are only 6 shares available, the registrar needs to allot these shares fairly. Here’s how the lottery might work:

Final Allotment After the Lottery: 

Applicant	Shares Applied	Shares Allotted
Applicant 1	1	1
Applicant 2	2	1
Applicant 3	2	1
Applicant 4	3	0
Applicant 5	4	1
Applicant 6	5	0
Applicant 7	1	1
Applicant 8	2	1
Total	20	6

How Does the Lottery Work?

The registrar uses a computerized system to randomly pick applicants. If your name is picked in the lottery, you get the shares. If your name isn’t picked, you don’t get any shares, even if you applied.

What Happens If You Apply Below the Cut-Off Price?

If you placed your bid at a price lower than the cut-off price, your application will not be considered for the allotment. To increase your chances, always apply at the cut-off price.

Important Points to Remember

1. Apply at the cut-off price to ensure your bid is considered.
2. The lottery system is random, and there’s no guarantee of getting shares.
3. If the IPO is heavily oversubscribed, your chances of getting shares decrease. By understanding the allotment process, you can make better decisions while applying for IPOs.

Read More:

How to Apply for an IPO?
When will my funds be unblocked if I do not receive allotment for an IPO?