Lot Size
In the context of an IPO, lot size is the minimum number of shares an investor must apply for in a single application, with applications required to be in multiples of one lot, ensuring the minimum application value falls within SEBI's prescribed range.
Lot size in IPOs was a standardisation mechanism that simplified the allotment process and ensured that the minimum investment by a retail investor fell within a band prescribed by SEBI. As of 2023–24 regulations, the minimum application amount for retail investors was required to be not less than Rs 10,000 and not more than Rs 15,000. The company and lead managers set the lot size such that the minimum application value (lot size × IPO price) fell within this range. For example, if the IPO cap price was Rs 500, the lot size would be set at 30 shares (30 × Rs 500 = Rs 15,000).
Retail investors could apply for a maximum of 13 lots in most IPOs while remaining classified as retail (keeping their total application below Rs 2 lakh — 13 × Rs 15,000 = Rs 1,95,000). Bids above this amount moved the investor to the Non-Institutional Investor (NII) or HNI category, where different allotment rules applied. HNI applications were not subject to the cut-off price option and had to specify an explicit price within the band.
The lot size had meaningful implications for allotment fairness. In oversubscribed retail portions, SEBI regulations prescribed a draw of lots for allotment, with each applicant eligible for a maximum of one lot regardless of how many lots they applied for — unless the oversubscription was low enough to allow more than one lot per applicant. This lottery-based allotment mechanism meant that applying for more lots did not increase the probability of allotment above one lot per applicant in heavily oversubscribed IPOs, leading to the widespread practice of applying from multiple demat accounts within a family (a practice that was legal as long as each application came from a different PAN).
In the NII (HNI) category, allotment rules differed. SEBI introduced proportionate allotment for the small-HNI sub-category (applications between Rs 2 lakh and Rs 10 lakh) and draw of lots for the big-HNI sub-category (above Rs 10 lakh) in 2022, replacing the earlier fully proportionate model that had favoured very large applications. This change made the NII category more accessible and reduced the incentive for artificially inflated bids.
Lot size also affected the secondary market post-listing. If the lot size was set too large relative to the IPO price, retail participation was structurally limited. Conversely, a smaller lot size at a lower IPO price democratised access. SEBI's Rs 10,000–15,000 minimum application range for retail was designed with this accessibility consideration in mind, ensuring that most employed individuals could participate in IPOs without committing a significant portion of monthly income to a single application.