Basis of allotment
The process of deciding how many shares each applicant in a public issue gets — all they applied for if the issue is not oversubscribed, otherwise a proportion worked out separately for each investor category.
In plain language
When a public issue closes, the company knows how many shares it offered and how many were applied for. The basis of allotment is how it decides who gets what.
The workbook's rule has two branches:
- If the shares applied for are equal to or less than the shares offered, each investor gets the number of shares he applied for.
- If the issue is over-subscribed, each investor's allotment is in proportion to the oversubscription.
The workbook's own glossary compresses it further: "an allotment pattern of an issue among different categories of applicant". The word categories matters — the calculation is not done once for the whole issue.
How it works
Step by step (section 3.12.1):
- Collate by category. Applications are grouped as retail investors, HNIs, QIBs, firms and so on.
- Compare with the reservation. Shares applied for in each category are compared with shares reserved for it, and the oversubscription ratio is worked out.
- Apply the ratio to each application in that category. Successful bids are grouped by the number of shares applied for.
- Approve and publish. The basis of allotment is approved by the board of directors and published in national newspapers.
Separately per category. The basis for retail investors, non-institutional buyers and so on is done separately, because oversubscription in each category is likely to be different.
Minimum allotment is the minimum application size disclosed by the issuer.
Who does the work. The registrar (RTA) assists the issuer in determining the basis of allotment and, if the issue is oversubscribed, finalises it in consultation with the lead manager, the issuer and the stock exchange. Finalising the basis of allotment is also listed among the Book Running Lead Manager's key post-issue responsibilities. The public issue process describes it as finalised "in consultation with the stock exchange". After that, shares are credited to the demat accounts of successful allottees.
The formula
Oversubscription (times) = Shares applied for in category ÷ Shares reserved for category
Shares allotted per application = Shares applied for ÷ Oversubscription (rounded)
The workbook's worded definition runs the other way — "the ratio of number of shares on offer to number of shares applied for" — but its worked table divides each application by 1.52, which is applied ÷ offered. Use the table's arithmetic.
A worked example
The workbook's table. The retail portion is oversubscribed 1.52 times:
| Shares bid for | Applications | Shares applied for | Allotted per application (bid ÷ 1.52) | Total allotted |
|---|---|---|---|---|
| 20 | 100 | 2,000 | 13 | 1,300 |
| 30 | 150 | 4,500 | 20 | 3,000 |
| 40 | 200 | 8,000 | 26 | 5,200 |
| 50 | 160 | 8,000 | 33 | 5,280 |
| Total | 610 | 22,500 | 14,780 |
An investor who bid for 20 shares gets 13 and a refund for 7. Check one line: 30 ÷ 1.52 = 19.7, rounded to 20.
The same logic in rupees (illustrative issue). An IPO at Rs 150 reserves 3,00,000 shares for retail investors, who apply for 7,50,000:
Oversubscription = 7,50,000 ÷ 3,00,000 = 2.5 times
Deepak applied for 500 shares, with Rs 75,000 blocked under ASBA:
Shares allotted = 500 ÷ 2.5 = 200
Amount debited = 200 × Rs 150 = Rs 30,000
Amount unblocked = Rs 75,000 − Rs 30,000 = Rs 45,000
If the HNI category in the same issue is oversubscribed 6 times, an HNI's allotment is worked out at 6 — not 2.5. Categories are never pooled.
Why NISM asks about it
Chapter 3 (Primary Markets) has its own section, 3.12.1 "Basis of Allotment", with the 1.52-times worked table, and mentions it again under the BRLM's post-issue duties, the RTA's role, and the public issue process. Expect a numerical question (shares allotted for a given bid and oversubscription), a statement question on category-wise computation, and a "who approves / where is it published?" question.
Common exam traps
- Not oversubscribed → full allotment of what was applied for. Proportionate allotment arises only on oversubscription.
- Computed separately for each category, because oversubscription differs across categories.
- Divide the application by the oversubscription multiple. The workbook's worded definition states the ratio the other way round (offer ÷ applied); its own table divides by 1.52. The arithmetic in the table is the one to follow.
- Rounding means totals do not tie exactly. In the workbook's table, 22,500 ÷ 1.52 is about 14,803, but the rounded allotments add up to 14,780.
- Minimum allotment is the minimum application size disclosed by the issuer. The workbook's 20-share row is an arithmetic illustration; in a real issue, this rule governs the smallest allotment.
- Approved by the board of directors and published in national newspapers.
- RTA and BRLM both appear in the workbook's description of who finalises it, in consultation with the stock exchange.
Check yourself
1.The retail portion of an IPO is over-subscribed 1.52 times. An investor who applied for 40 shares will be allotted approximately:
- a)40 shares
- b)26 shares
- c)61 shares
- d)13 shares
Show the answer
Answer: (b) 26 shares
In an over-subscribed issue, shares are allotted on a proportionate basis, with the oversubscription ratio applied to each application within its category.
40 ÷ 1.52 = 26 shares, with a refund for the remaining 14.
The workbook's own table confirms the pattern: a bid for 20 gets 13, for 30 gets 20, for 40 gets 26, for 50 gets 33.
Why the wrong options tempt: 40 ignores oversubscription altogether. 61 multiplies by 1.52 instead of dividing — the answer must be less than what was applied for. 13 is the correct allotment for a 20-share bid, and is there to catch anyone who reads the wrong row.
Two related points: the basis of allotment is worked out separately for each investor category, because oversubscription differs by category; and the minimum allotment is the minimum application size disclosed by the issuer.
Where this is taught
- Series II-A · Chapter 9: Processes related to Public Offering of sharesintroduced here
- Series XII · Chapter 3: Primary Marketsintroduced here
Related terms
- ASBAThe mandatory payment mechanism for public and rights issues, in which your bank blocks the application money in your own account and debits it only if you actually get an allotment.
- Retail Individual InvestorUnder the SEBI ICDR Regulations, 2018, an individual investor who applies or bids for specified securities for a value of not more than Rs 2 lakh.
- Cut-off priceIn a book-built issue, the price at which the issue is fully subscribed. Everyone who bid at or above it succeeds and is allotted at that price.
- Qualified Institutional BuyersThe closed list of institutional investors in the ICDR Regulations — SEBI-registered funds, non-individual FPIs, banks, insurers, large provident and pension funds — with special rights and limits in issues.
- Merchant bankerA SEBI-registered body corporate engaged in the business of issue management — arranging the selling, buying or subscribing of securities, or acting as manager, consultant or adviser in relation to an issue.
- Registrar to an issueA SEBI-registered intermediary that, for an issuer, collects applications, keeps records of applications and money, and helps fix the basis of allotment and send out allotments and refunds.
- Book built issueA public issue in which the price is discovered from investor bids inside a price band, rather than fixed by the issuer in advance, with allotment made at the cut-off price.
- Fixed price issueA public issue in which the company, with its lead manager, sets the issue price in advance and discloses it, so investors know exactly what they will pay when they apply — the alternative to a book built issue.
- Banker to an issueA scheduled bank or other SEBI-specified banking company that accepts application and allotment monies, refunds application money and pays dividend or interest warrants for an issue.