When a firm makes an Initial Public Offering (IPO), it invites investors to purchase its shares for the first time. While applying for an IPO, you may have heard the term “lot size.” This can be puzzling for many new investors. However, the idea is very simple. Learning about lot size will help you understand how many shares you can apply for and how much you need to invest.

Meaning of IPO Lot Size

In an IPO, shares are not purchased one by one, as in the normal stock market. They are purchased in predetermined lots, known as “lots.” The size of the lot is the minimum number of shares that you need to apply for while applying for an IPO. Suppose the size of the lot is 100 shares. In that case, you cannot apply for 10 shares or 50 shares. You need to apply for at least 100 shares. If you want more, then you need to apply for more shares in multiples of the lot size, such as 200, 300, or 400 shares.

Why Lot Size Is Important?

The lot size is an important factor in determining the minimum amount of investment that is required in an IPO. Since you have to apply for at least one lot, the lot size has a direct impact on the amount of money that you have to hold back in your bank account at the time of applying. It also ensures that there is no imbalance in the allotment of IPOs. When a large number of applicants apply for an IPO, it is easier to allot shares based on a fixed lot size. The lot size for retail investors is usually set in a way that the minimum amount of investment is not very expensive.

How to Calculate the Minimum Investment?

The formula to calculate the minimum investment required in an IPO is to multiply the lot size by the offer price per share. The minimum investment needed at the IPO price of ₹150 per share and a lot size of 100 shares will be calculated as follows.

100 shares × ₹150 = ₹15,000

If there is a price band in the IPO, applicants apply for the shares at the higher end of the price band to get a better chance of allotment. This means that the final blocked amount may be marginally higher.

Can You Apply for More Than One Lot?

Yes, it is possible for investors to apply for more than one lot, subject to the IPO conditions. For example, if the lot is 100 shares, you can apply for 200, 300, or 400 shares in multiples of 100. However, there is a limit to how many lots a retail investor can apply for. This is to ensure that the shares are distributed evenly and not dominated by a few investors. It is always important to note the IPO conditions before applying.

How Lot Size Affects Allotment?

If the IPO is highly sought after, it is possible that there will be more applications than there are shares available. This is known as oversubscription. In such a scenario, the shares are allocated in multiples of the lot size through a lottery system or proportionate basis. You could end up with one lot, multiple lots, or in some cases, no shares at all, depending on the demand. As the allocation is done in lots, you will never end up with a fraction of a lot.

Planning Your Investments Wisely

Lot size is a very basic yet fundamental concept in IPO investment. It helps you understand the minimum number of shares that you need to apply for and the amount of money you need to invest. Once you understand the concept of lot size, you can easily calculate the amount of money you need to invest in an IPO. It doesn’t matter whether you are an experienced investor or a beginner; understanding the concept of IPO application helps you make better financial decisions.

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