IPO lot size, price band and minimum investment

In an IPO you cannot bid for a single share. You bid for a lot, which is a fixed number of shares set by the company and its bankers, and for whole multiples of it: one lot, two lots, three lots, and so on. The lot size is printed in the offer document and shown on each IPO's page.

In practice, most mainboard IPOs set the lot size so that one lot costs roughly ₹14,000 to ₹15,000 at the upper end of the price band. SME IPOs have much larger minimum bids, set in their own offer documents. See SME IPO versus mainboard IPO.

In a book-built IPO the company announces a price band, a lower price (the floor) and an upper price (the cap). SEBI's rules limit how wide it can be: the upper price can be at most 20% above the lower price. Investors bid within the band, and when bidding closes the final issue price is fixed, also within the band.

Retail investors usually bid at the cut-off price. That means: charge me the final issue price, whatever it is within the band. The amount blocked for such a bid is worked out at the upper price, so it always covers the final price. If the final price is lower, the difference is released after allotment. A bid placed below the final price is rejected, which is why the cut-off option is the standard choice.

The minimum investment is the lot size multiplied by the price per share. Take an example.

Our IPO pages show the minimum investment at the lower end of the band, and the lot table on each IPO's page works the limits out at the upper price, because that is the price the category limits are judged on. If the band is a single price, there is just one number.

A retail bid cannot go above ₹2 lakh. The most lots you can bid for is the number of whole lots that keep the amount under that, worked out at the upper price. With the example above, a lot costs ₹15,000 at the top of the band, so 13 lots is ₹1,95,000, still a retail bid, and 14 lots is ₹2,10,000, which is not. A bid above ₹2 lakh falls into the non-institutional category and is allotted differently. See IPO investor categories.

The application amount calculator does this for any price and lot size, and shows which category the bid falls into.

It depends on the category. In the retail category, if the issue is oversubscribed, a computerised draw decides who gets shares, and a bid for more lots does not improve your chance in the draw. It only ties up more money and, if you win, gets you one lot's worth of the draw. In the non-institutional categories, allotment is broadly proportionate to the size of the bid. How the allotment lottery works explains both.

Some IPOs give a discount per share to employees or to retail investors, or reserve a part of the issue for employees or existing shareholders. When it applies, it is stated in the offer document and on the Offer details tab of the IPO.