Even if a retail investor applies for Rs 2 Lakhs, allotment is limited to only one lot. Why is it that way?

An individual is allotted 1 lot, irrespective of the number of lots applied, only if the issue is oversubscribed. In case of an unsubscribed issue, he should generally get the desired number of lots.

Let’s understand how shares are allotted in an IPO?

The number of shares offered for retail investors is divided by the number of shares in 1 lot to identify the number of applicants who will get at least 1 lot.

For example, consider ABC company issuing an IPO. The lot size is of 20 shares. So, if 2,00,000 shares are available for retail investors and 1 lot in the issue is 20 shares then

2,00,000/20= 10,000.

It means 10,000 applicants will get 1 lot. In case of oversubscription, the applicants applying for the IPO are greater than the number of applicants who can get at least 1 lot, so a lottery is used to select the applicants for allotment.

In the case of under subscription, in some cases, some applicants may get less than what they applied for while others getting the desired lots.

Continuing the above example, say the issue was undersubscribed and only 8000 applicants applied for the issue. Now, these 8000 will be given at least 1 lot while the remaining 2000 lots will be divided based on criteria determined by the registrar of the issue.