Understanding IPO Lot Size: A Beginner's Guide for Investors

An Initial Public Offering (IPO) is a significant event where a privately held company offers its shares to the public for the very first time. This process transforms the business into a publicly traded entity, allowing everyday investors to become part-owners. While IPOs often generate excitement, it's essential to understand key elements like the IPO lot size before diving in. This guide will help you make sense of what IPO lot size means, why it matters, and how it affects your investment decisions.

What is IPO Lot Size?

IPO lot size refers to the minimum number of shares you can apply for in one transaction during an IPO. You cannot apply for any random number of shares — your application must be in multiples of the lot size specified in the IPO offer document.

For example, if the lot size is 100 shares, you can apply for 100, 200, 300 shares, and so on — but not 150 or 275.

The lot size is pre-determined by the company issuing the IPO and may vary based on several factors, which we’ll cover below.

Why IPO Lot Size Matters

Lot size helps standardize the bidding process and ensures an equitable distribution of shares. Here’s why it’s crucial:

• Transparency & Order: It simplifies how shares are distributed among investors.
• Retail Investor Access: SEBI (Securities and Exchange Board of India) mandates a minimum lot size to ensure wider participation.
• Allotment Logic: In case of oversubscription, allotment is often done on a lottery basis, with one lot per eligible investor.

Minimum vs. Maximum Lot Size

• Minimum Lot Size: This is the smallest number of shares you can apply for. It ensures that applicants make a meaningful investment.Example: If the lot size is 50 shares, and the minimum requirement is three lots, then you must apply for at least 150 shares.
• Maximum Lot Size: This is the highest number of shares an individual can apply for in the retail category. It prevents a single investor from cornering a majority of the shares.Example: If the maximum allowed is 10 lots of 50 shares each, the investor can apply for up to 500 shares.

How is Lot Size Decided in an IPO?

The issuing company, in consultation with lead managers and regulatory guidelines, determines the lot size based on:

1. Share Price – Higher priced shares may come with smaller lot sizes to keep the minimum investment reasonable.
2. Total Shares Offered – Based on the company's capital requirements and available equity.
3. SEBI Guidelines – Regulatory thresholds ensure investor protection and fairness.
4. Market Sentiment – Demand, liquidity, and broader market conditions can also influence lot size.
5. Investor Inclusivity – The aim is to keep IPOs accessible to retail investors by keeping the minimum investment in a standard range (typically ₹14,000 to ₹15,000).

How to Calculate the Minimum Investment

To calculate your minimum investment:

Lot Size x Issue Price = Minimum Investment

Example: If the issue price is ₹100 and the lot size is 148 shares:

148 x ₹100 = ₹14,800 minimum investment

Real-World Examples of IPO Lot Sizes

Here’s a quick look at how lot sizes differ across IPOs:

• Travenues Technology (Ixigo) – Lot size: 214 shares
• Bajaj Housing Finance – Lot size: 214 shares
• Scoda Tubes Ltd. – Lot size: 100 shares
• Accretion Pharmaceuticals Ltd. – Lot size: 1,200 shares
• N R Vandana Tex Industries Ltd. – Lot size: 3,000 shares
• Prostarm Info Systems Ltd. – Lot size: 142 shares

Understanding IPO lot size is more than just a technicality — it’s a key part of planning your investment. It determines how much you need to invest, how many shares you can apply for, and ultimately, your chances of allotment.

So, the next time an IPO catches your eye, don’t just look at the hype. Dig into the lot size, issue price, and total investment requirement before placing your bid.

Smart investing begins with informed choices.

Stay tuned to Fynocrat for more such insights and smarter investing strategies.

Frequently Asked Questions (FAQ)

1. What is an IPO?

An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time and becomes listed on a stock exchange.

2. Why do companies go public?

Companies raise funds through an IPO for expansion, debt repayment, brand building, or to allow early investors to exit.

3. What is IPO lot size?

Lot size is the minimum number of shares you must apply for in an IPO. You can apply in multiples of the lot size, but not less than that.

4. How is the IPO price decided?

Companies either fix a price band (in a book-building issue) or set a fixed price. Investors bid within the range or at the fixed price.

5. What is the difference between retail and institutional investors in an IPO?

Retail investors are allotted shares from a reserved portion of the IPO, while institutional and HNI investors bid in different categories, often with higher amounts.

6. How do I apply for an IPO?

You can apply through your demat account using your broker's platform.

7. What is the allotment process in IPOs?

If the IPO is oversubscribed, shares are allotted via lottery system among eligible applicants. Unsuccessful applicants get their money unblocked.

8. Is IPO investment risk-free?

No. While IPOs can offer strong listing gains, they also carry risks. Not all IPOs perform well post-listing — study the company fundamentals carefully.