Understanding the IPO Allotment Process: Does Applying for Multiple Lots Improve Chances?

When it comes to participating in Initial Public Offering (IPO) allocations, it's natural to wonder if there are strategies that can improve your chances of getting allotted shares. One common assumption is that applying multiple times or for multiple lots increases your chances significantly. However, does the process really work like that? Let's dive into the details of the IPO allotment process and explore the impact of applying multiple lots.

The IPO Allotment Process

IPOs (Initial Public Offerings) are an exciting way for retail investors to participate in the stock market. The primary process of allotting shares to investors includes the following steps:

Subscription Phase: During this phase, investors can apply for shares in the IPO. There are two main categories of investors: retail and institutional. Retail investors typically apply through their demat accounts and are subject to a retail quota. Random Allocation: Once the subscription phase ends, the allocation is made through a process known as random selection. The stocks are allocated to unique IDs, specifically your PAN (Permanent Account Number) in the case of retail investors. Lottery System: If the IPO is oversubscribed, the allotment is done on a lottery basis. Each application is assigned a unique ID, and multiple applications using the same PAN are considered as a single application.

Impact of Multiple Lots on Allotment

Many applicants believe that applying for multiple lots increases their chances of getting allotted more shares. However, this is a common misconception. Here's a breakdown of why:

Connection to PAN: Each application for an IPO is linked to a unique PAN number, which acts as the identifier for all your applications. Even if you apply many times, the allotment algorithm treats it as a single application due to the same PAN. Lottery System: In the event of an IPO being oversubscribed, the allocation is done through a lottery system. The system randomly selects unique IDs (PANs) to allocate shares. Therefore, the number of applications does not directly correlate with your success rate. Saving Multiple Demat Accounts: Instead of applying with multiple lots, diversifying your chances by using different demat accounts of yourself and your family members can increase your overall odds of getting allotted shares. Each unique PAN is a separate entry in the lottery, thus increasing your probability of being selected.

Key Points to Remember

While applying for multiple lots may seem like a wise strategy, it's important to consider the following:

Avoid Maximum Bids in Single Accounts: It's not wise to put your entire investment in a single account. Instead, distribute your bids across multiple accounts to maximize your chances of being allotted shares. Focus on Retail Quota: Apply through the retail quota, which is usually more accessible to individual investors. If the retail quota is oversubscribed, the allocation is done through a lottery system. Utilize Multiple Demat Accounts: If an IPO is highly subscribed, applying through multiple demat accounts of yourself and your family members can increase your chances of getting allotted shares.

Conclusion

Understanding the IPO allotment process and the impact of applying for multiple lots is crucial for retail investors looking to increase their chances of getting allotted shares. The key to success lies in utilizing different demat accounts and distributing your bids wisely. The allocation process is based on a lottery system, and each unique PAN is considered a separate application, thus not directly influenced by the number of lots you apply for.

By following these strategies, you can enhance your chances of getting allotted shares in the next IPO, providing you with more opportunities to participate in the exciting world of Initial Public Offerings.