LOT Size in IPO - Complete Guide

Lot size in an IPO refers to the minimum number of shares an investor must apply for while bidding in an Initial Public Offering. Investors cannot apply for fewer shares than one lot.

Below is a complete and detailed explanation:

1. Meaning of Lot Size in IPO

Lot size is a fixed quantity of shares set by the company for IPO applications.
An investor must bid in multiples of this lot size.

Example:

• Lot size = 50 shares
• Minimum application = 50 shares
• Next possible bids = 100, 150 shares, etc.

2. Why Lot Size Is Used

Lot size is used to:

• Ensure fair distribution of shares
• Simplify the allotment process
• Enable maximum retail participation
• Avoid extremely small or impractical applications

3. Who Decides the Lot Size?

• Decided by the company
• In consultation with merchant bankers
• Approved by SEBI
• Mentioned in the Red Herring Prospectus (RHP)

4. Where Lot Size Applies

Lot size is applicable in:

• IPO (Initial Public Offering)
• FPO (Follow-on Public Offer)
• Rights Issue

❌ Not applicable in secondary market trading (normal buying/selling)

5. Lot Size and Retail Investor Limit

For Retail Individual Investors (RII):

• Maximum application value = ₹2,00,000
• Application must stay within this limit

Example:

• Price per share = ₹200
• Lot size = 50 shares
• Value per lot = ₹10,000
• Maximum lots allowed = 20

6. Types of Investors and Lot Size

1. Retail Investors

• Apply in lots within ₹2 lakh limit
• Allotment via lottery if oversubscribed

2. Non-Institutional Investors (HNI/NII)

• Apply above ₹2 lakh
• Allotment on proportionate basis

3. Qualified Institutional Buyers (QIB)

• Large institutional investors
• No upper limit on application size

7. Impact of Lot Size on Allotment

• Smaller lot size → higher chance of allotment
• Larger lot size → higher investment required
• In oversubscription:
• Retail allotment is done by lottery
• One lot is usually allotted first

8. Example of Lot Size in IPO

• IPO price band: ₹100 – ₹110
• Lot size: 100 shares
• Minimum investment (at cut-off ₹110): ₹11,000
• Retail investor can apply for multiple lots

9. Lot Size vs Market Lot

10. Advantages of Lot Size

• Equal opportunity for retail investors
• Simplifies allotment
• Prevents domination by large investors

11. Disadvantages / Limitations

• Large lot size increases minimum investment
• Retail investors with limited funds may be excluded

12. In Simple Words

Lot size in an IPO is the minimum number of shares an investor must apply for, and applications can only be made in multiples of this size.