Retail investors can apply for Rs 2 Lakhs but are limited to one lot. Why is it so?

One lot is allotted to an individual, regardless of how many lots were applied. This applies only to issues that are oversubscribed. If the issue is not subscribed, the individual should be allotted one lot.

Let's see how shares are allocated in an IPO.

To determine the number applicants who will receive at least one lot, the retail investor number is divided by the number shares in a lot.

Consider ABC Company issuing an IPO. The lot size is 20 shares. If 2,00,000.00 shares are available to retail investors, and 1 lot is in the issue, then 20 shares would be required.

2,00,000.00/20= 10,000

This means that 10,000 applicants will be eligible to win 1 lot. If there is an excess of applicants, applicants will apply for the IPO. In this case, applicants can only get one lot. A lottery is used for allocation.

Undersubscription can lead to applicants receiving less than they apply for and others receiving the desired lots.

Let's say that the issue was not fully subscribed and that only 8000 applicants applied. These 8000 applicants will receive at least one lot, while the 2000 remaining lots will be divided according to the criteria set by the registrar.