What is proportionate basis of allotment?

Proportional allotment is used in initial public offerings (IPOs) to allot shares to investors if the issue is oversubscribed. It ensures that all eligible applicants receive shares proportionately to the number of shares they apply for rather than by random or preferential selection.

Calculate the total number of shares applied for by all investors in a particular category.

Calculate the Proportionate Ratio:

• Ratio = (Total Shares Available) ÷ (Total Shares Applied For).
• This ratio indicates the percentage of shares each applicant will receive compared to their application amount.

Allot Shares:

• Multiply the ratio by the number of shares applied for by each investor.
• The result is rounded down to the nearest whole number (as shares cannot be allotted in fractions).

Example

• Total Shares Available: 10,000 shares.
• Total Shares Applied For: 50,000 shares.
• Proportionate Ratio: 10,000 ÷ 50,000 = 0.2 (20%).

Now, if an investor applies for 1,000 shares:

• They will receive 1,000 × 0.2 = 200 shares.

Handle Leftover Shares:

• If any shares remain due to rounding, they are allotted randomly among applicants, ensuring no partiality.