January 04, 2025
7 mins read
One of the exciting things that can happen on the stock market is an Initial Public Offering (IPO). It's the time when a private company goes public and sells its shares for the first time.
For investors, the appeal is obvious: a chance to get in on the ground floor of what could be the next big thing. Everyone wants early access.
The application itself looks simple. You fill out a form online. The company decides. But that simplicity is deceptive.
Getting an allotment, especially in a popular IPO, is far from guaranteed. Many small things can go wrong and lead to disappointment.
Understanding why applications get rejected is the key to improving your own odds. Let's break down the common hurdles and the smart ways to clear them.
It's important to understand that you don't apply for individual shares in an IPO. You apply for a "lot." Think of it as buying in a pre-set bundle.
The company decides the minimum number of shares that make up one lot. Every application you make must be in multiples of that lot size.
The company might, for instance, set the price at ₹100 per share and the lot size at 145 shares. This means that you have to apply for at least 145 shares.
You have to apply for 2 lots (290 shares), 3 lots (435 shares), and so on if you want to apply for more. You can't ask for a random number, like 200 shares.
The application process is designed to be straightforward. Fill in the correct details, submit the form online, and wait.
Yet, it’s incredibly common for hopeful investors to miss out, often due to a few recurring problems or simple, avoidable mistakes.
In a perfect world, a company would issue just enough shares for everyone who wants them. If they needed 10 lakh applicants, 10 lakh people would apply, and everyone would be happy.
But that's not how it works. A hot IPO is like a sold-out concert with only a handful of tickets. It might get applications for 5, 10, or even 100 times the shares it's actually offering.
This is called oversubscription. It’s a big reason why getting an allotment is so difficult. There simply isn't enough to go around.
When this happens, the game changes from "first come, first served" to a game of chance, where your odds of success drop dramatically.
So what happens when an IPO is massively oversubscribed? The allotment process turns into a digital lottery. There’s no human picking names out of a hat.
A computerised system is used to ensure the process is fair and unbiased. It randomly selects the lucky applicants from the massive pool of eligible entries.
While this system gives everyone an equal shot, it's still a lottery. Because so many people want a small number of shares, many people who apply will not get any.
This is one of the painful reasons to miss out because it's usually avoidable. IPO applications are scanned by software, and even a tiny mistake can get your form thrown out.
Multiple applications: Submitting multiple applications from one PAN number. The system is built to catch this, and it will automatically reject all of them. No exceptions.
Mistakes: A typo in your name. A single wrong digit in your PAN number. Small details that have big consequences.
Name Mismatch: Another common tripwire is a name mismatch. The name on your application must be identical to the name on your PAN card and your linked bank account.
Bid Price Below the Final Price: Many IPOs today are book-building issues. This means there's a price range, and you place a bid within it. The final price is decided later, based on demand.
Here's the rule: if your bid is even one paisa below that final issue price, your application is out of the running. It won't even be considered for the lottery.
This is why just bidding any amount within the range is a risky move. If you bid low to save a few rupees, you might end up with nothing at all.
You can't control the lottery, but you can control your application. Here are some proven strategies:
This is non-negotiable. Double-check, and then triple-check, every single detail on your form before you hit submit. A simple typo is an unforced error.
Make sure your name, PAN, and bank details are perfect and match across all your documents. There is no room for small mistakes here.
Once you submit the form, fixing an error is nearly impossible. It's much easier to get it right the first time.
It feels counterintuitive, but applying for a huge amount of shares doesn't help a retail investor. In fact, it can be pointless due to SEBI's rules for fairness.
SEBI regulations state that all retail applications under ₹2 lakh must be treated equally. In an oversubscribed IPO, each person gets a maximum of one lot.
To genuinely increase your odds in a lottery-based allotment, you need more lottery tickets. The way to do that is by applying through multiple Demat accounts.
This means applying through the accounts of different family members, each with their own unique PAN number. Using multiple accounts tied to your own PAN will get you disqualified.
This is one of the smart moves that you can make. When you bid, select the 'cut-off' price option. This tells the system you're willing to pay whatever price is finalised.
By choosing this, you guarantee your application will be considered, no matter how high the final price is set. The maximum amount in the price band is blocked from your account.
If the final issue price is set lower than that maximum, the difference is simply refunded back to you. It's a simple way to ensure you stay in the game.
For example, if the band is ₹100-₹101, ₹101 is blocked. If the price is finalised at ₹100.80, you get ₹0.20 per share back.
Don't wait until the final hours. Last-minute applications are prone to errors made in a rush. That's not the only risk, either.
Heavy traffic can crash websites, and payment gateways can fail. Submitting your application a day or two early avoids all this potential chaos.
Here's a less common but effective strategy. If the company's parent firm is already listed, you can buy its shares to become a shareholder.
This often allows you to apply for the IPO in the "shareholder" category, which has its own separate quota. This quota can sometimes have much better allotment odds than the crowded retail category.
Note: These are strategies to improve your chances, not guarantees. An IPO allotment is never a sure thing.
IPOs are an important part of the market because they give companies and investors new chances. But getting an allotment in a hot issue is a mix of skill and luck.
The process is easy, but being smart is often the key to success. It's important to have a clean application, a bid below the cut-off price, and to use all of your advantages.
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Applying for an IPO requires the applicant to pay the issue price and this is done by blocking the amount from their bank account. In case, the IPO is not alloted to an applicant, the amount blocked from the applicant’s bank account is released.
Remember that an IPO allotment status is reflected in your demat account only when the company has finalised the allotment. If your demat account is not showing IPO status, this either means that your application has been rejected or you have filled incorrect IPO details.
To know whether your application form has been rejected or not you can simply visit the official website of Bombay Stock Exchange/BSE or the website of the registrar appointed for the IPO. Fill in the PAN card details and click on search. The screen will show the status of the IPO application form.
The payment for an IPO might fail even if the IPO has been allotted in your name. This happens because the payment for an IPO is not deducted from your bank account until the IPO is finalised and only the amount is blocked. In case payment fails after the IPO allotment, the bank will re-attempt to debit the blocked amount.
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