What is Lot Size in IPO

Ever wondered why you can’t just buy a single share when applying for an IPO (Initial Public Offering)? That’s where the concept of the lot size in IPO comes in. In every IPO, shares are offered in fixed groups called lots, and investors must bid in ipo for at least one lot or its multiples. This system ensures fairness, standardises investment amounts, and makes the allotment process more organised.

In this guide, we’ll cover what is lot size in IPO, how it’s decided, how to calculate it, and why understanding IPO lot size is essential before investing.

Lot Size Meaning in IPO

The lot size in IPO refers to the minimum number of shares an investor must apply for when subscribing to a company’s public issue. You cannot bid for just one or two shares; applications must be made in multiples of the fixed lot sizes.

For example, if the IPO lot size is 50 shares, you can apply for:

• 1 Lot = 50 Shares
• 2 Lots = 100 Shares
• 3 Lots = 150 Shares

Here, you cannot apply for 30 or 73 shares.

Two Types of Lot Size in IPOs

When apply for an IPO, the number of shares you can bid for is controlled through two types of lot limits: minimum lot size and maximum lot size. These help maintain fair participation among investors.

1. Minimum Lot Size:

The minimum lot size is the smallest number of shares you’re allowed to apply for in an IPO. You cannot apply for anything below this limit. This ensures that only genuine investors participate and the application process remains streamlined.

2. Maximum Lot Size:

The maximum lot size is the highest number of shares you’re allowed to apply for. This cap prevents a single investor from cornering a large portion of the issue. It also helps distribute shares more evenly among applicants.

Let’s understand both with the help of an example,

An IPO with

• Lot Size: 50 Shares per Lot
• Minimum Application: 2 Lots
• Maximum Application: 10 Lots

In this case:

• Minimum Lot Size: You must apply for at least 2 lots (100 shares). Applications for fewer than 2 lots will not be accepted.
• Maximum Lot Size: You can apply for up to 10 lots (500 shares). Even if you want to invest more, the company caps it at 10 lots to ensure fair distribution.

This system ensures that only serious investors participate while preventing a few investors from monopolising the IPO.

How is the Lot Size Decided in IPOs?

The lot size in an IPO is decided by the company issuing the shares, in consultation with regulatory authorities like SEBI. Several factors influence the final number of shares in a lot:

• Share Price: Higher-priced shares may have smaller lot sizes so that the minimum investment remains reasonable for retail investors.
• Total Shares on Offer: Companies consider how many shares they are issuing and their funding requirements when deciding the lot size.
• Regulatory Guidelines: SEBI mandates that the minimum application value for a Retail Individual Investor (RII) must fall within a specific range, which is typically ₹10,000 to ₹15,000. This RII limit is the most critical driver for the lot size calculation.
• Market Conditions and Demand: The company looks at investor sentiment, liquidity, and expected demand to choose a lot size that encourages wider participation.
• Investor Accessibility: This is the entire purpose of the "lot size" for the retail category; it ensures a standardised, affordable minimum entry point for the average investor.

If the IPO is oversubscribed, shares are allotted either proportionally or via a lottery system, ensuring fair distribution among applicants.

How to Calculate the IPO Lot Size?

The IPO prospectus provides all details about the lot size for that issue. Let’s understand how to calculate the IPO lot size:

Example:

Suppose a company is issuing 12,000 shares in its IPO and sets the minimum lot size at 300 shares. This means:

• One lot = 300 shares
• Investors must buy at least 1 lot (300 shares) to participate.
• Investors can apply for multiples of this lot size, up to the maximum lot limit.

You can calculate the total number of lots available in the IPO using this formula:

Total Lot = Total Shares Issued/Minimum Lot Size

If the IPO sets a maximum application limit of 5 lots, it means an investor cannot buy more than 1,500 shares (5 × 300 shares) in this IPO.

Example of Lot Size in IPO

To understand IPO lot size better, let’s look at some real-world examples:

1. Bajaj Housing Finance IPO:

The lot size was 214 shares. With a price band of ₹66–70 per share, a retail investor needed a minimum of ₹14,980 (214 × 70) to apply for one lot.

2. Ganesh Consumer IPO:

In this IPO, the lot size was 46 shares, and the minimum investment for a retail participant was ₹14,076.

These examples show that lot sizes vary across IPOs depending on the company’s pricing, total shares issued, and investor accessibility.

Conclusion

Understanding the lot size in IPO is essential because it affects your minimum investment, ensures fair allotment, and prevents concentration of shares among a few investors.

By knowing the minimum and maximum lot sizes and how to calculate your investment, you can plan your participation efficiently and make informed decisions. Always check the IPO prospectus for the declared IPO lot size before applying.

Remember, the lot size meaning goes beyond just numbers; it ensures fairness, accessibility, and a smooth investment process for all investors.

FAQs

1. How many lots can be applied in an IPO?

The number of lots you can apply for depends on the IPO’s rules. Some IPOs allow multiple lots up to a specified maximum, while others may restrict the number of lots per investor.

Can I buy less than 1 lot in an IPO?

No. You must apply in multiples of the minimum lot size. Buying fewer than one lot is not allowed.

How many shares are in one lot?

One lot contains a fixed number of shares, which is specified in the IPO prospectus. For example, one lot may have 46, 50, or 214 shares, depending on the IPO.

What is the lot size?

The lot size is the minimum block of shares you can apply for in an IPO. Applications must be in multiples of this number.

Does lot size matter in IPO?

Lot size ensures fairness, prevents a few investors from monopolising the shares, and standardises the investment process for retail and institutional investors.

What is the minimum and maximum lot size in an IPO?

The minimum lot size is the least number of shares you must apply for, while the maximum lot size limits how many shares you can bid for. These limits vary across IPOs.