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What is Initial Public Offering Allotment?Issuing shares of a private firm to the public in a fresh stock issuance is called allotment of shares or an initial public offering (IPO) allotment. An initial public offering (IPO) allows a firm to raise funds from the general public. The move from a private to a public firm, which often involves a share premium for current private investors, can be a crucial opportunity for private investors to completely realize the rewards from their investment. Meanwhile, public investors are allowed to participate in the offering. A red herring prospectus comprises information on the IPO, such as the number of shares to be issued, the share price/price band, and previous company performance. How IPO Allotment Process Works?IPO share allotment is a complex, time-consuming process that most businesses find difficult to navigate on their own. A private firm seeking an IPO share allotment must prepare for a massive increase in public scrutiny and file a mountain of paperwork and financial reports to satisfy the Securities and Exchange Commission (SEC), which regulates public corporations. That is why a private firm planning to go public engages an underwriter, usually an investment bank, to advise them on the IPO and assist them in setting an initial price. Underwriters assist management in preparing for an IPO by generating important investor documents and conducting roadshows with potential investors. Procedure for Allotment of IPO SharesWith so many people interested in IPOs, it is crucial to understand that investors will be given the same number of shares they bid for if the issue is fully subscribed. However, in a circumstance where the issue is oversubscribed, such as when the IPO was 20 times oversubscribed, the number of investors increased by tenfold. In such cases, all investors would be unable to get at least one lot per share. Here, a computerized lottery draw is used to distribute the prizes. This is how shares are allotted in IPOs, through an impartial and randomized lottery system in which few will be fortunate enough to receive one lot each, while others may not. Reason for Non-allotment of IPO SharesThere are three primary causes for non-allotment. Wrong Information:Each IPO application is scrutinized for correctness; therefore, it's critical to have correct technical information. An application also becomes invalid If the PAN, bank account, or Demat account details are incorrect or if it is submitted by the same person many times.
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