In the exciting world of Initial Public Offerings (IPOs), securing an allotment can feel like striking gold. But with numerous applications vying for a limited pool of shares, many investors wonder: Does applying for more lots increase your chances of getting an allotment? This blog post dives into the truth behind this common misconception and equips you with effective strategies to navigate the IPO allotment process.
Understanding IPO allotment Process
Contrary to popular belief, the number of lots you apply for in an IPO has no direct bearing on your chances of allotment. Securities and Exchange Board of India (SEBI) regulations mandate a fair and transparent allotment process for retail investors. Here's how it works:
- Subscription Process: Investors submit applications for a minimum number of lots specified by the company.
- Oversubscription: If the total number of applications exceeds the available shares for retail investors, the allotment process kicks in.
- IPO Allotment Methods: There are two primary methods for IPO allotment:
- Ratio Method: The shares are divided proportionally among all retail investors, irrespective of the number of lots applied for. Each investor receives a portion of their requested shares based on the overall subscription level.
- Lottery System: In some cases, a computerised lottery system is used to distribute shares among retail investors. Again, the number of lots applied for doesn't influence your selection in the lottery.
Also read: How are IPO shares allotted?
IPO investment strategies
While the number of lots doesn't directly impact allotment, here are some effective strategies to consider:
- Apply Early: Submit your application on the first day of the IPO subscription period to increase your chances of receiving an allotment in case of a ratio-based distribution.
- Multiple Applications (with Caution): You can consider applying through different demat accounts belonging to close family members (not duplicate accounts). However, ensure each applicant has the necessary funds to avoid application rejection.
- Bid at Cut-Off Price: Bidding at the cut-off price (the highest price discovered during the book-building process) can improve your chances in a lottery system, as all bids at this price have an equal chance of selection.
- Focus on Strong Fundamentals: Prioritise IPOs of companies with sound financials, a clear growth strategy, and a proven track record.
Conclusion
By understanding the IPO allotment process and employing strategic techniques, you can approach IPO investing with greater confidence. Remember, allotment is never guaranteed, so conduct thorough research before investing and prioritise companies with strong fundamentals for long-term success.
Additional tips
- Stay Informed: Subscribe to reliable financial news sources to stay updated on upcoming IPOs and their allotment processes.
- Consult a Financial Advisor: Seek guidance from a qualified financial advisor who can assess your risk tolerance and recommend suitable IPO opportunities.
IPO investing can be an exciting opportunity, but it's crucial to approach it with the right information and strategies. By following these tips, you can navigate the IPO process effectively and make informed investment decisions.
