IPO Allotment Basis: How Shares Are Split When Oversubscribed

You bid for an IPO, the issue got oversubscribed many times over, and then the registrar handed you either a single lot or nothing at all. That outcome is not luck and it is not arbitrary. It is decided by the IPO allotment basis — the rulebook SEBI lays down for how a limited number of shares are split among far more applicants than there are shares to go around. Understand the basis of allotment and you stop guessing: you know why applying for ten lots in the retail category does not help, why big investors still get shares pro-rata, and why “oversubscribed 40 times” quietly tells you your odds. This guide walks through exactly how shares are split when an IPO is oversubscribed, with an illustrative worked example and the current timeline.

What “basis of allotment” really means

The basis of allotment is the formula that decides who gets how many shares once bidding closes. It is not set by the company or your broker. It is finalised by the issue’s registrar to the issue — a SEBI-registered transfer agent such as Kfintech, MUFG Intime (formerly Link Intime) or Bigshare — working in consultation with the designated stock exchange, NSE or BSE.

After the window closes, the registrar does three things in sequence. First, it validates every application: rejecting duplicate PANs, technical rejections, and bids with blocked-amount mismatches. Second, it counts valid demand in each category against the shares reserved for that category. Third, it applies SEBI’s allotment method for each category and publishes a public document, literally titled the Basis of Allotment, that tabulates, for every bid size, how many valid applications were received and the ratio in which shares were allotted.

That document is why allotment feels mechanical: every applicant in the same category and bid size is treated identically. If you want to build this foundation properly rather than piece it together from forum threads, a structured stock market course walks through the primary-market process end to end.

How an oversubscribed IPO is split: QIB, NII and retail

Before any individual allotment is worked out, the offer is carved into category pools. A share reserved for one category can never spill into another. For a standard book-built issue by a profitable company, SEBI’s ICDR regulations set the reservation like this:

Three terms matter here. QIBs are qualified institutional buyers — mutual funds, insurers, foreign portfolio investors and the like. NIIs are non-institutional investors, also called HNIs, who apply for more than ₹2 lakh. RIIs are retail individual investors whose total application stays at or below ₹2 lakh. The split above is the common case; for an issue that does not meet the profitability test, the regulations flip the weighting toward QIBs, so always read the offer document rather than assuming.

The key takeaway: oversubscription is measured category by category, not across the whole issue. A stock can be subscribed 60 times overall but only 8 times in retail, and it is the retail figure that governs your odds. We unpack each pool in our explainer on IPO subscription categories: QIB, NII and retail.

How retail allotment works when oversubscribed

This is where most retail confusion lives. SEBI’s rule for the retail category has one governing aim: maximise the number of unique investors who receive shares. The system does not reward the biggest applicant; it spreads thin.

Start with the minimum bid. Every IPO sets a lot — a fixed bundle of shares priced so the minimum application lands near ₹14,000 to ₹15,000. A retail investor can apply for one lot up to as many lots as fit under the ₹2 lakh ceiling. But when demand is heavy, all of that extra bidding collapses to a single outcome.

Two scenarios play out:

• Mild oversubscription: if the number of valid retail applications is less than or equal to the lots available, every applicant first receives one lot, and any leftover lots are distributed proportionately to those who applied for more.
• Heavy oversubscription: if valid applicants outnumber the lots available, not everyone can get even one lot. A computerised draw of lots, run in the presence of a stock-exchange representative, randomly selects which applicants receive one lot each. The rest get nothing.

Here is an illustrative worked example — round numbers chosen to show the mechanic, not a real issue:

Illustrative figures to show the mechanic — not a real IPO. Source: SEBI ICDR retail allotment method.

The uncomfortable truth: in a heavily oversubscribed retail category, applying for more lots in one application does not raise your chance of getting that single lot. The draw works at the application level, and the realistic ceiling becomes one lot per successful applicant. What a bigger application does change is the mild-oversubscription case, where spare lots are shared pro-rata.

NII and QIB: proportionate versus draw of lots

The non-institutional and institutional pools follow different logic from retail. Since 1 April 2022, SEBI split the NII category in two to stop a handful of very large applicants from cornering the pool:

• Small NII (sNII): applications above ₹2 lakh and up to ₹10 lakh. This sub-category gets one-third of the NII reservation and is allotted by draw of lots, much like retail — a minimum-lot basis.
• Big NII (bNII): applications above ₹10 lakh. This gets two-thirds of the NII reservation and is allotted proportionately — apply for more, and a larger application genuinely means a larger allotment.

The QIB pool is allotted on a proportionate basis too, after the anchor-investor portion (a slice placed with large institutions a day before the issue opens) is carved out. Here is how the four buckets compare:

Source: SEBI ICDR Regulations; NII sub-categorisation effective 1 April 2022.

So the same word — “oversubscribed” — produces opposite experiences. A retail investor and a small-NII investor face a lottery; a big-NII and a QIB investor get a shrunk-but-proportionate slice. That design is deliberate: it keeps IPOs accessible to small investors instead of letting capital size decide everything.

Allotment myths and mistakes that cost retail investors

Once you understand the basis, the common errors become obvious:

• Applying for the maximum lots to “improve chances”: in a heavily oversubscribed retail category, the draw is per application, so the extra lots only lock up more of your money without raising your odds.
• Multiple applications on the same PAN: the registrar rejects all of them. One PAN, one retail application — this is the single most common technical rejection.
• Using family members’ accounts carelessly: each distinct PAN can apply once, which is legitimate, but the bank account and demat must genuinely belong to that person.
• Bidding below cut-off in a strong issue: a bid under the final price is simply not considered for allotment.
• Blaming the broker for “no allotment”: the broker only forwards your bid; the basis of allotment is the registrar’s doing, supervised by the exchange.

None of this tells you whether an IPO is worth applying to — that is a separate question of valuation and business quality. If you want to understand why some issues draw enormous demand in the first place, read why IPOs get oversubscribed and what the demand says about your odds.

The allotment timeline and what to do next

Since the move to a T+3 listing timeline — mandatory for issues that opened on or after 1 December 2023 — the whole process from close to listing runs in three working days:

Source: SEBI circular on T+3 listing, effective for issues opening on or after 1 December 2023.

Because you apply through UPI or ASBA, the application amount stays blocked in your own bank account the entire time and is simply released if you are not allotted — you never “send” money that has to be refunded. If the mechanics of blocking funds are new to you, our step-by-step on how to apply for an IPO with UPI and ASBA covers it. Once allotment is finalised, you can confirm your result on the registrar’s portal, as we show in our guide to checking IPO allotment status online.

The practical lesson is calm expectations. In a hot issue, treat one lot as the best realistic retail outcome, apply once per PAN, and judge the company on its fundamentals rather than on how many times it was subscribed.

Frequently Asked Questions

What is the basis of allotment in an IPO?

The basis of allotment is the SEBI-governed formula the registrar uses to split a limited number of IPO shares among applicants once bidding closes. It is finalised with the stock exchange and published as a public document showing, for each category and bid size, how many valid applications were received and the ratio of allotment.

How are IPO shares allotted when oversubscribed in the retail category?

When the retail category is oversubscribed, SEBI’s aim is to give at least one lot to as many unique investors as possible. If applicants outnumber the available lots, a computerised draw of lots — supervised by a stock-exchange representative — randomly selects who receives a single lot each; the rest receive nothing.

Does applying for more lots increase my IPO allotment chances?

Not in a heavily oversubscribed retail category. The draw of lots works per application, so the realistic ceiling is one lot per successful applicant regardless of how many lots you bid for. A larger application only helps in mild oversubscription, where spare lots are shared proportionately after everyone gets one.

How is NII allotment different from retail allotment?

Since 1 April 2022 the NII pool is split into small NII (₹2 lakh to ₹10 lakh), allotted by draw of lots, and big NII (above ₹10 lakh), allotted proportionately. In the big-NII and QIB categories a larger application genuinely earns a larger allotment, unlike retail.

How long after an IPO closes is the allotment decided?

Under the T+3 listing timeline, mandatory for issues opening on or after 1 December 2023, the basis of allotment is usually finalised around T+1, funds are unblocked for unsuccessful bidders by about T+2, and the stock lists on T+3 — three working days from the issue close.

Disclaimer: This article is for educational purposes only and does not constitute investment advice. Markets carry risk — please do your own research or consult a qualified financial professional before investing. NIFM provides training and exam preparation; certification exams conducted by regulatory or professional bodies are administered by those bodies independently.