What is the Lot Size in an IPO?

Topics Covered

• What is IPO Lot Size?
• How to Calculate the Lot Size of an IPO?
• What is the Market Lot Size for an IPO?
• How Much Value of Shares Can Investors Apply in the IPO Issue?
• Can Investors Change the Lot Size?
• Can Investors Get Multiple Lots in an Oversubscribed IPO?
• Invest in IPOs through Religare Broking’s Demat Account
• In a Nutshell

What is IPO Lot Size?

The IPO lot size refers to the minimum number of shares that a single investor can purchase. One cannot buy shares arbitrarily in an IPO. It cannot go below the minimum number of shares predetermined by the issuing company. SEBI also plays a role in determining the minimum number of shares for a single investor in an IPO. The lot size denotes the minimum number of shares to be purchased. Let us say a lot in an upcoming IPO is 30 shares. It means that investors cannot purchase less than one lot, which is 30 shares. Investors will purchase shares in multiples of 30, which is the lot size. To participate in IPOs and trade shares in the stock market, investors need to have a demat account, which acts as an electronic repository for holding securities in a dematerialized format. Demat account opening is a prerequisite for engaging in share trading activities.

There are two types of lot sizes in an IPO, which are:

Minimum Lot Size

The minimum lot size in an IPO is the smallest order an investor can place. An investor cannot buy shares below the minimum lot size. By setting up a minimum lot size, issuers ensure that only serious investors participate in the IPO. Let us say a company launching its shares has a lot size of 100 shares. Also, the minimum lot size is three lots, which means 300 shares. An investor must purchase a minimum of three lots (300 shares) to participate in the IPO.

Maximum Lot Size

The maximum lot size in an IPO is the maximum number of shares an investor can purchase. By setting up a maximum lot size, issuers prevent monopolising of shares. Companies launching their IPOs can ensure the distribution of shares to numerous investors by setting up a maximum lot size.

How to Calculate the Lot Size of an IPO?

The IPO document issued by the company will also contains information regarding the lot size. Let us say that a company issuing 10,000 shares in an IPO has a minimum lot size of 200 shares. It means that one must buy a minimum of 200 shares (1 lot) to participate in the IPO. Investors can buy shares in lots (multiples of 200) up to the maximum lot size. In this example, the number of lots issued by the company can be known through a straightforward formula, which is:

Total lots issued = Total number of issued shares / minimum lot size Total lots issued = 10000/200 = 50 lots

Let us say the maximum lot size is six lots. It means an investor cannot purchase more than six lots (1200 shares) in the IPO.

What is the Market Lot Size for an IPO?

Now that you have understood lot size in an IPO; let us discuss the market lot size. The market lot size is entirely different from the IPO lot size. It is the minimum number of shares that can be traded on stock exchanges after the closure of the IPO. Assume a company has a market lot size of 200 shares. It means investors must buy a minimum of 200 shares after IPO closure on stock exchanges. The IPO lot size might be more or equal to the market lot size. For instance, the same company might have asked investors to buy a minimum of two lots (400 shares) to participate in the IPO.

How Much Value of Shares Can Investors Apply in the IPO Issue?

You must apply for a minimum number of shares in an IPO, as stated by the issuer. The maximum value that can be invested in an IPO will depend on the maximum lot size. You can spend money to buy the maximum number of shares predetermined by the issuer.

Can Investors Change the Lot Size?

The issuer and regulatory authorities predetermine the lot size of an IPO. Investors do not have the authority to manipulate the IPO lot size. They can only bid between the minimum and maximum lot sizes the issuer provides.

Can Investors Get Multiple Lots in an Oversubscribed IPO?

With oversubscription, the issuer receives more orders than the total number of shares. In such a case, the issuer calculates the oversubscription ratio. In some cases, investors might receive additional lots based on the oversubscription ratio However, there is no guarantee that you will receive multiple lots in an oversubscribed IPO.

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In a Nutshell

It is essential to know what lot size is in an IPO. Based on the lot size, you must apply for a minimum number of shares to participate in an IPO. The IPO lot size is notified beforehand by the issuer.