How IPO allotment actually works

When an IPO is oversubscribed, every retail applicant has the same shot. The person who bids for one lot and the person who bids for fourteen lots both enter the same draw. Either the draw assigns a lot, or it does not. Applying for more does not improve the odds.

That is the core mechanic of Indian retail allotment. It is not a market where the highest bidder wins. It is a lottery, set out in Schedule XIII of the ICDR Regulations, and it applies once the retail category is oversubscribed. ¹

The allocation rules that govern this process are set out in Regulation 32 of the ICDR Regulations. For a normal book-built IPO on the main board, the net offer is split into three buckets: at least 35% to retail individual investors, at least 15% to non-institutional investors (NII), and not more than 50% to qualified institutional buyers (QIB). Within the QIB portion, 5% is reserved for mutual funds. If the retail or NII category is undersubscribed, the unsubscribed portion can spill over to any other category. ¹

For issues built under Regulation 32(2) — the compulsory-QIB route — the allocation shifts. Retail gets no more than 10%, NII gets no more than 15%, and QIB gets at least 75%. The same 5% mutual-fund reservation inside the QIB portion applies. ¹

The three buckets: QIB, NII, retail

The percentages in Regulation 32(1) are floors and ceilings, not targets. The issuer and its merchant bankers decide the exact split within those bounds. The table below shows the two regimes side by side.

Category	Normal book-built (Reg 32(1))	Loss-issuer book-built (Reg 32(2))
Retail individual investors	Not less than 35%	Not more than 10%
Non-institutional investors	Not less than 15%	Not more than 15%
Qualified institutional buyers	Not more than 50% (5% reserved for mutual funds)	Not less than 75% (5% reserved for mutual funds)

The spillover provisos differ between the two regimes. In a normal book-built issue under Regulation 32(1), an unsubscribed retail or NII portion may be allocated to applicants in any other category. In a compulsory-QIB issue under Regulation 32(2), an unsubscribed retail or NII portion may be allocated only to applicants in the other of those two categories, not to QIB. ¹

Anchor investors: carving out the QIB portion

Before the public issue opens, the issuer can allocate up to 60% of the QIB portion to anchor investors. An anchor investor is a QIB that applies for at least ₹10 crore in a main-board book-built IPO. The allocation is discretionary. The issuer and merchant bankers choose who gets in. ¹

The number of anchor investors is capped by the total anchor size. Schedule XIII of the ICDR Regulations lays out the limits:

Total anchor allocation	Minimum investors	Maximum investors	Minimum per investor
Up to ₹10 crore	—	2	—
Above ₹10 crore, up to ₹250 crore	2	15	₹5 crore
Above ₹250 crore	5	15 for the first ₹250 crore, plus 10 for every additional ₹250 crore or part thereof	₹5 crore

¹

One-third of the anchor portion is reserved for domestic mutual funds. The anchor bidding opens one day before the issue opening date. Anchor investors pay the same margin as other categories on application, and the balance is due within two days of issue closure. If the final issue price is higher than the anchor allocation price, the anchor pays the difference. If the final price is lower, the anchor keeps the shares at the higher price. No refund. ¹

The lock-in for anchor investors was changed in April 2022. Before the amendment, all anchor shares were locked in for 30 days from allotment. After the amendment, 50% of the shares are locked in for 90 days, and the remaining 50% for 30 days. For issues of ₹10,000 crore or more that opened on or after April 1, 2022, the effective date was pushed to July 1, 2022. ¹

The NII sub-split: sHNI and bHNI

The non-institutional investor category was split into two sub-categories by an amendment effective April 1, 2022. One-third of the NII portion is reserved for applicants with an application size between ₹2 lakh and ₹10 lakh, the small high net-worth individual (sHNI) bucket. Two-thirds is reserved for applicants with an application size above ₹10 lakh, the big high net-worth individual (bHNI) bucket. ¹

If one sub-category is undersubscribed, the unsubscribed portion may be allocated to applicants in the other sub-category. ¹

For issues of ₹10,000 crore or more, the effective date was July 1, 2022. ¹

Retail allotment: undersubscribed vs. oversubscribed

The retail individual investor is defined as an individual who bids for a value of not more than ₹2 lakh. ¹ The allotment procedure depends on whether the retail category is undersubscribed or oversubscribed.

Undersubscribed case. Every applicant gets at least the minimum bid lot. The remaining shares, after every applicant has received one minimum lot, are distributed proportionally. SEBI’s worked example (Example A in Schedule XIII) walks through five investors who bid 320, 220, 120, 60, and 20 shares respectively, with a minimum lot of 20. Each receives the 20-share minimum first. The residual shares are then allocated in proportion to each investor’s original bid. ¹

Oversubscribed case. Once retail demand exceeds supply, the lottery rule overrides everything else. SEBI’s worked example (Example B) puts numbers on it:

• Total shares on offer in the retail category: 35,00,000
• Minimum bid lot: 20 shares
• Total retail applicants: 2,00,000
• Oversubscription in retail: 9.37 times

The maximum number of allottees is 35,00,000 divided by 20, which is 1,75,000. That is the number of applicants who can receive the minimum lot. The remaining 25,000 applicants get nothing. ¹

The selection is done by lottery, applied proportionally across all bid-lot tiers. The 2,00,000 applicants bid in varying lot sizes — from 1 lot to 16 lots. At every tier, the number of successful applicants is computed as (1,75,000 / 2,00,000) × the number of applicants at that tier. That is 87.5% at every lot size. The recipients within each tier are selected by lottery. ¹

The result: an applicant who bid for 1 lot has an 87.5% chance of getting 20 shares. An applicant who bid for 16 lots also has an 87.5% chance of getting 20 shares, not 320 shares. The larger bid does not increase the probability of allotment. It only increases the amount blocked in the bank account during the application period.

Reservation portions: employees and shareholders

The issuer can make reservations on a competitive basis out of the issue size, excluding promoters’ contribution, in favour of employees and shareholders. ¹

Employee reservation. The aggregate reservation for employees cannot exceed 5% of the post-issue capital. The value of allotment to any single employee cannot exceed ₹2 lakh. There is a roll-up provision: if the employee portion is undersubscribed, the unsubscribed portion can be allotted on a proportionate basis for a value up to ₹5 lakh per employee. ¹

Shareholder reservation. The reservation for shareholders cannot exceed 10% of the issue size. Only shareholders of listed subsidiaries or listed promoter companies are eligible, not promoter group members. ¹

Spillover mechanics. Any unsubscribed portion in a reserved category can be added to another reserved category. After inter-se adjustments among the reserved categories, any remaining unsubscribed portion is added to the net offer category. Conversely, if the net offer category is undersubscribed, spillover from the reserved categories is permitted. ¹

Restriction on further applications. A person who applies under a reservation category cannot make a further application in the net offer, except for employees and retail individual shareholders. ¹

When the bank fails: compensation for ASBA errors

Applications Supported by Block Amount (ASBA) has eliminated most refund-related complaints. But there are cases where an applicant fails to get allotment because of a failure on the part of the Self Certified Syndicate Bank (SCSB), the bank that processes the ASBA application. ²

SEBI’s Master Circular identifies three failure scenarios: the SCSB fails to make the bid in the exchange system even after blocking the amount; the SCSB fails to process the ASBA application submitted within time; or any other SCSB failure that results in rejection of the application. ²

The compensation formula is fixed:

Compensation = (Listing price − Issue price) × (Shares that would have been allotted) × (Probability of allotment)

The listing price is taken as the highest of the opening prices on the day of listing across all recognised stock exchanges. ²

For issues subscribed between 90% and 100%, that is, non-oversubscribed issues, the applicant is compensated for all the shares they would have been allotted. No compensation is payable if the listing price is below the issue price. ²

The redress process: the applicant must approach the SCSB within three months of the listing date. The SCSB must resolve the grievance within 15 days. If it fails to do so, it must pay interest at 15% per annum for the delay. SEBI may also initiate action against the SCSB. ²

The ASBA system, for all its efficiency, creates a single point of failure: the bank. When the bank fails, the investor loses the chance to participate in the lottery. The formula attempts to put the investor in the position they would have been in, had the bank done its job.

Footnotes

1. SEBI ICDR Regulations, 2018, last amended on March 8, 2025. sebi.gov.in. Citations in this article are to Regulations 31–33 and Schedule XIII of these Regulations. ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³ ↩¹⁴ ↩¹⁵ ↩¹⁶ ↩¹⁷ ↩¹⁸ ↩¹⁹ ↩²⁰

2. SEBI Master Circular for Issue of Capital and Disclosure Requirements (SEBI/HO/CFD/PoD-1/P/CIR/2024/0154), dated 11 November 2024. sebi.gov.in. Citations in this article are to Chapter 5 (Compensation to Retail Individual Investors in an IPO). ↩ ↩² ↩³ ↩⁴ ↩⁵