Basis of Allotment
The Basis of Allotment is the document published by the registrar to an IPO after the subscription window closes, detailing the methodology and final allotment ratios for each investor category — with retail investors receiving allotment through a computer-based lottery if oversubscribed, while NII (HNI) investors receive proportionate allotment and QIBs receive discretionary allotment by the issuer.
The Basis of Allotment (BoA) is a publicly disclosed document filed with the stock exchanges and published on the registrar's website after an IPO closes and the allotment is finalised. It provides a detailed, category-wise breakdown of how shares were allocated, given the demand received. Understanding the BoA mechanism is important for investors to set realistic expectations about their likelihood of receiving an allotment, particularly in heavily oversubscribed IPOs.
For the Retail Individual Investor (RII) category (applications for up to Rs 2 lakh), SEBI's ICDR Regulations mandate a specific lottery-based allotment mechanism when the category is oversubscribed. The number of successful applicants is capped at the total retail portion divided by the minimum lot size — i.e., the maximum number of applicants who can each receive exactly one lot. A computer-based randomised draw determines which applicants receive this one-lot allotment. The key implication is that applying for more lots in the retail category does not improve one's chances of allotment once the category is oversubscribed; every valid retail application (for any number of lots) has the same probability of receiving exactly one lot in the lottery. This contrasts sharply with the intuition of many first-time IPO investors who apply for the maximum retail lot size expecting better odds.
For the Non-Institutional Investor (NII) or HNI category (applications for more than Rs 2 lakh), the allotment was proportionate until SEBI's 2021 amendment, which introduced a draw-based allotment for the NII category as well, divided into two sub-categories: applications between Rs 2 lakh and Rs 10 lakh (one-third of NII portion) and applications above Rs 10 lakh (two-thirds of NII portion). The amended framework reduced the advantage of applying for very large amounts in the HNI category, partly curbing the leveraged application phenomenon.
For the QIB category (which includes mutual funds, FPIs, insurance companies, and banks), allotment is at the discretion of the issuer in consultation with the lead book-running manager. SEBI permits the issuer to exercise discretion in QIB allotment to ensure a quality investor base (prefer long-term institutional holders over pure short-term traders). In practice, domestic mutual funds and long-term FPIs were typically favoured over hedge funds or high-frequency investors in the discretionary QIB allotment process.
The BoA also lists unsubscribed portions (if any) that are either absorbed by other categories (per spill-over rules under ICDR) or result in a lower final issue size. For investors, checking the BoA for recent IPOs provided data to estimate their probability of allotment in future issues with similar subscription levels.