Have you ever been in a spot where you have applied for an IPO and not received any allotment? If you have, it can be devastating to watch all the news around the listing day gains.

When a company launches an IPO, it invites you to buy its shares and be a part of its expansion. Every IPO has specific requirements like a price range and lot size, which you have to meet when applying.

However, despite meeting these requirements, there are times when you might not receive an IPO allotment.

In this article, we’ll explain why you might be missing out on an IPO allotment.

1. IPO Oversubscription

When a company launches an IPO, it specifies a price range and a fixed number of shares for sale. For instance, a company aiming to raise Rs 50 crores may offer 10,000 lots (comprising 100 shares each) at a price range of Rs 500-514.

Ideally, if the company receives applications for exactly 10,000 you would get an allotment. However, if more people apply than the available shares, the IPO becomes oversubscribed.

If the company receives applications for 20,000 lots, the IPO is oversubscribed twice. This means that half the people who applied will not get any shares for the IPO allotment, simply because too many people want it.

2. Computerised Lottery

An IPO allotment is never done on a first-come, first-serve basis. It is more of a random lottery system that decides who will get an IPO. A computerised lottery gives everyone an equal chance of receiving shares.

But, because of the high demand and the oversubscribed issue, many investors, including you, might not get an allotment. We can conclusively say that the share allotment also depends on your luck to a great extent.

3. Invalid Application

Your IPO application is reviewed by the IPO registrar to ensure all details are correct. Applications can be rejected for technical reasons, and you may not always be informed of these issues.

Some common reasons for rejection include:

●      Multiple Applications with the Same PAN

Submitting more than one application under the same PAN number is a common reason your application could be rejected. You can only submit one application per PAN, so if you try multiple, they will all be rejected.

●      Incorrect or Invalid Application Details

Fill out incorrect or invalid information on the application form.​​​​​​​

●      Name Mismatch on PAN and Bank Account

A mismatch between your name on the PAN card and your bank account.

If your application is considered invalid, you won’t receive an allotment.

4. Bid Price Lower than the Final Issue Price

In a book-building IPO, you choose the price you’re willing to pay within the given price range. If the price range is Rs 500-514, you can bid at any price within that range.

Once all applications are received, the company sets a final issue price. If your bid price is lower than the final issue price, your application won’t qualify for allotment.

Here is how you can make sure to get an IPO allotment:

●      Fill out your IPO form carefully to avoid rejection due to incorrect information.

●      SEBI treats all retail applications under Rs 2 lakh equally. Only one lot per investor is allotted if selected in the lottery. Bigger applications only help if the IPO is undersubscribed.

●      Using multiple Demat accounts of family and friends can increase your chances in the lottery since each account is treated separately.

●      By applying at the cut-off price, you agree to pay whatever the final Issue price is. It prevents rejection due to a low bid price and ensures you're in the running for allotment.

Conclusion

Getting an allotment in an oversubscribed IPO is a big win, as it often leads to listing gains once the shares are listed. However, there can be a lot of speculation about a company's performance and future outlook. So, despite the hype around an IPO, it may not always be the best decision for your portfolio.

Before you invest, make sure to study the business and understand its intent in raising money from the public. Once you have that clarity, apply for an IPO while keeping all the above points in mind.

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