how is the allotment of shares done? suppose if the ipo gets oversubscribed 8 times and i have applied for 8 times the minimum amount, then i get shares worth the minimum amount and if i have applied for less i don't get anything? please explain

IPO allotment is always done on proportionate basis in the retail category.

In HNI category, it may or may not be on proportionate basis.

Consider this example.

Suppose there is an IPO of 1000 shares. (Retail category has 1000 shares).

Lot sizes in retail category are 10, 20 and 30.

Total applications for 10 shares = 300 = 3000 shares.
Total applications for 20 shares = 100 = 2000 shares.
Total applications for 30 shares = 500 = 15000 shares.

Total subscription = 20000 shares = 20 times available shares.

Now the company will allot shares in each "lot size" in equal proportion.

10 share applications add up to 3000 shares, so they will get 150 shares.

20 share applications add up to 2000 shares, so they will get 100 shares.

30 share applications add up to 15000 shares, so they will get 750 shares.

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Usually allotment is done in lots of minimum application size. In this case it will be 10 shares.

Now, for those who applied for 10 shares, only 15 people will get 10 shares each. (15 X 10 = 150)

Now, for those who applied for 20 shares, only 10 people will get 10 shares each. (10 X 00 = 100)

Now, for those who applied for 30 shares, only 75 people will get 10 shares each. (75 X 10 = 750)

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If you look at the probabilities, you will notice that those who applied for more shares, have a greater probability of allotment.

For 10 share applications, 15 people out of 300 got 10 shares => Probability of getting 10 shares = 1 in 20.
For 20 share applications, 10 people out of 100 got 10 shares => Probability of getting 10 shares = 1 in 10.
For 30 share applications, 75 people out of 500 got 10 shares => Probability of getting 10 shares = 1 in 6.67.

Conclusion - more shares you apply for, more is the chance of getting shares. Chance doesn't mean 100% certainty. It is just probability.
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Is it clear or a bit confusing?

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All doubts stand cleared, Mr Alchemist!! Thank you.

wonderful explanation... thanks a lot...

btw, I've a doubt...
Will there be any priority that people who apply at the earliest will be preferred(at lest 1% more) over the others...?

Or is it pure flat basis that all the applications received on the first/last day will be given equal importance...!

the time/date of application is not a factor in the allotment process of an IPO.

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Dear Alchemist....In the example you quoted, what if the maximum bids are received for 10 lots, followed by 20 lots and 30 lots on the lower side.

Does that mean, in that case people who applied for 10 lots will stand better chances for allocation ?

-Gold4uin

No. The probability of allotment will always be remain proportional to the number of shares applied for.

That is why it is known as allotment of proportionate basis.

If the case was

Total applications for 10 shares = 400 = 4000 shares.
Total applications for 20 shares = 150 = 3000 shares.
Total applications for 30 shares = 100 = 3000 shares.

then

10 share applications will get 400 shares in total.
20 share applications will get 300 shares in total.
30 share applications will get 300 shares in total.

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Allotment is done in lots of minimum application size. In this case it will be 10 shares.

Now, for those who applied for 10 shares, only 40 people will get 10 shares each.

Now, for those who applied for 20 shares, only 30 people will get 10 shares each.

Now, for those who applied for 30 shares, only 30 people will get 10 shares each.

Thus probability of allotment of shares for 10 share application = 40 people who will get allotment / 400 applications = 1/10.

Thus probability of allotment of shares for 20 share application = 30 people who will get allotment / 150 applications = 2/10.

Thus probability of allotment of shares for 20 share application = 30 people who will get allotment / 100 applications = 3/10.

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Hi,

It would be of great help if anybody could tell me about the IPO allotment procedure. do i get a better chance of allotment if I go through IPO funding. Has anbody gone through the funding procedure and has got good allotment.

(I have moved your post to a thread that explains IPO allotment process.)

Your chances of allotment are proportional to the size of your application.

More shares you apply for, more are your chances of getting shares.

The chances are independent of the source of funds.

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Hi all, the question thats' bothering me is:

If I have applied for 12 lots of Mundra port and issue is oversubscribed 16 times in retail, then will i get any shares at all, as lot size is 15 shares and 12*15 = 180, 180/16 = 11.25 < 15 ?

so technically I should get 11 or 12 shares but since lot size is 15,
so will I get any shares at all ?

Over subscription of 16 times means - for every 1 lot there are 16 lot applications.

You have applied for 12 lots.

Thus, for everyone who has applied for 12 lots, the company will give 3 out of 4 people 15 shares (1 lot) and 1 out of 4 people will get 0 shares.

Thus 45 shares (3 lots) will get distributed between applications of 720 shares (48 lots).

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Thanks for the clear explanation...

HI,

Still am in confusion, 2 doubts;

1.) Can people get the shares less than the number of shares in the specified in the minimum lot?

For instance; if the minimum lot size is 10, can I get 8 or 7 shares?

2.) Does everyone get shares if they opted, or else some one will be left out?

I can't think of any IPO where the number of shares allotted to individual applicants was less than the minimum lot size.

If an IPO is heavily over-subscribed, allotment is done by lottery (draw of lots) and some applicants may get no shares.

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