SME IPO Allotment Process: A Simple Guide with Examples
- What is the SME IPO Allotment Process?
- Step-by-Step SME IPO Allotment Process
- 1. Minimum Allotment Requirement:
- 2. Retail Individual Investors (RII) Allotment:
- 3. Non-Retail Investors (NII and QIB) Allotment:
- What Happens When the IPO is Oversubscribed?
- Why Might You Not Get an Allotment?
- SME IPO Allotment Status
- Conclusion
- Frequently Asked Questions
The SME IPO allotment process follows specific guidelines and involves several key steps to ensure a fair allocation of shares to investors. Understanding this process is crucial for anyone interested in investing in an SME IPO. This article will break down the process for both retail and non-retail investors and provide examples to clarify how shares are allocated.
💡 Quick Answer
SME IPO shares are allotted from the Basis of Allotment prepared by the registrar. Every successful applicant must get at least one trading lot, so the number of allottees is capped at the shares on offer divided by the lot size. Retail applications above that cap go to a lottery; non-retail bids are scaled down proportionately.
What is the SME IPO Allotment Process?
When an SME company issues an Initial Public Offering (IPO), the allotment of shares is done based on a document called the Basis of Allotment (BOA). This document, prepared by the IPO registrar, provides details on how shares will be distributed among different categories of investors, including Retail Individual Investors (RIIs) and Non-Institutional Investors (NIIs).
For an SME IPO to be successfully listed on the SME exchange, a minimum of 50 applicants is required. The process of allotment begins after the closure of the IPO and follows the rules set by SEBI.
Step-by-Step SME IPO Allotment Process
1. Minimum Allotment Requirement:
According to SEBI guidelines, each applicant must receive at least one trading lot. For example, if an SME company issues 50,00,000 shares, and the lot size is 2000 shares, the maximum number of allottees who will receive one lot is:
50,00,000 shares / 2000 shares per lot = 2500 applicants.
Therefore, 2500 investors will be allotted at least one lot each.
2. Retail Individual Investors (RII) Allotment:
Retail investors who bid for shares worth up to ₹2 lakhs fall under this category. If the total number of applications exceeds the shares available for RIIs, the allotment is done through a lottery system.
Example:
Suppose a company has 20 lakh shares available for the retail segment, and the minimum lot size is 10,000 shares. The maximum number of retail allottees would be:
20,00,000 / 10,000 = 200 applicants.
If 250 retail investors apply for shares, only 200 applicants will be allotted shares, selected through a computerized lottery. The remaining 50 applicants will not receive any allotment.
| Scenario | Shares Offered (Retail) | Lot Size | Applications Received | Allotted Through Lottery |
|---|---|---|---|---|
| Oversubscription Example | 20,00,000 | 10,000 | 250 | 200 |
3. Non-Retail Investors (NII and QIB) Allotment:
Investors in this category include Non-Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) who bid for amounts greater than ₹2 lakhs. In case of oversubscription, the allotment is done on a proportionate basis.
Example:
If an NII applies for 10 lakh shares, and the NII category is oversubscribed by 10 times, the investor will be allotted:
10 lakh shares / 10 = 1 lakh shares.
| Category | Shares Applied | Oversubscription | Shares Allotted |
|---|---|---|---|
| Non-Institutional Investor | 10 lakh | 10x | 1 lakh |
| Qualified Institutional Buyer | 15 lakh | 5x | 3 lakh |
What Happens When the IPO is Oversubscribed?
When an IPO receives more applications than the shares available, the following occurs:
- Retail Investors: The maximum number of retail investors who can be allotted shares is calculated by dividing the total shares available by the minimum bid lot. If the number of applications exceeds this, the allotment is done via a lottery system, where successful applicants are chosen randomly.
- Non-Retail Investors: The allotment for non-retail investors is done proportionally. If an investor applies for shares that are 10 times oversubscribed, they will receive 1/10th of the shares they applied for.
Why Might You Not Get an Allotment?
There are a few common reasons why an investor may not receive an allotment in an SME IPO:
- Oversubscription:
If the IPO is heavily oversubscribed, only a limited number of investors will receive shares. In such cases, allotment is done through a lottery, and some investors may not receive any shares. - Incorrect Application Details:
If your application has any incorrect details, such as incorrect PAN or Demat account information, your application may be rejected. - Non-Allotment Due to Lot System:
The SME IPO allotment process follows a lot system. If the total number of valid applications exceeds the available shares, you may not receive allotment due to the random nature of the lottery system.
SME IPO Allotment Status
Once the IPO issue closes, the registrar announces the allotment of shares. Investors can check their allotment status online by visiting the registrar’s website and entering details such as:
- Company name
- PAN number
- IPO application number
This allows investors to easily track whether they have been allotted shares or not.
Conclusion
The SME IPO allotment process, while similar to the mainboard IPO process, has its own unique aspects, especially in the way it allocates shares to retail and non-retail investors. Whether through the lottery system for retail investors or the proportionate basis for non-retail investors, the allotment process is designed to ensure fairness and transparency.
By understanding this process, investors can better prepare for SME IPOs and manage their expectations when applying for shares.
Key Takeaways
- Allotment follows the Basis of Allotment document prepared by the IPO registrar, which sets out how shares are split between investor categories.
- An SME IPO needs a minimum of 50 applicants to be listed on the SME exchange.
- Every applicant must receive at least one trading lot, so the maximum number of allottees is the shares on offer divided by the lot size.
- Retail investors bidding up to ₹2 lakh are allotted by computerised lottery when the category is oversubscribed.
- NIIs and QIBs bidding above ₹2 lakh are allotted on a proportionate basis — a 10x oversubscribed application receives a tenth of the shares applied for.
- You can miss out through oversubscription, incorrect PAN or demat details, or simply the randomness of the lottery.
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Frequently Asked Questions
What is the SME IPO allotment process?
When an SME company issues an IPO, shares are allotted using the Basis of Allotment document prepared by the IPO registrar. It sets out how shares are distributed between Retail Individual Investors and Non-Institutional Investors, and the process begins after the IPO closes.
How many applicants does an SME IPO need?
A minimum of 50 applicants is required for an SME IPO to be successfully listed on the SME exchange.
How is the maximum number of allottees calculated?
Each applicant must receive at least one trading lot, so you divide the shares on offer by the lot size. In the article’s example, 50,00,000 shares with a lot size of 2000 shares gives a maximum of 2500 allottees.
How are shares allotted to retail investors in an SME IPO?
Retail investors who bid for shares worth up to ₹2 lakh fall into this category. If applications exceed the shares available, allotment is done through a computerised lottery. In the article’s example, 250 applicants compete for 200 lots and 50 receive nothing.
How are non-retail investors allotted shares?
Non-Institutional Investors and Qualified Institutional Buyers bidding above ₹2 lakh are allotted on a proportionate basis. If an NII applies for 10 lakh shares and the category is oversubscribed 10 times, the allotment is 1 lakh shares.
Why might you not get an SME IPO allotment?
Three reasons in the article: heavy oversubscription means only a limited number of investors receive shares, incorrect application details such as a wrong PAN or demat account can get your application rejected, and the lot-based lottery is random.
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