What Is the Lot Size in an IPO?￼
As we already know, Initial Public Offering (IPO) is the process that a company follows to offer its shares to general investors for the first time. Before going public, these companies have to decide on several things such as the number of shares to be issued, their prices and lot size.
So what is lot size and why do you need to know about lot sizes of shares to invest in an IPO? Keep reading for all the answers!
What Is IPO Lot Size?
Investors cannot arbitrarily purchase shares during the IPO of a company. SEBI (Securities and Exchange Board of India) governs and seeks to maintain a minimum limit for investors to purchase IPO shares from a company.
In simple terms, IPO lot size is the minimum number of shares an investor can buy from an IPO transaction. Investors can buy shares in one or more lots. For example, if the lot size of an IPO is 20 shares, investors can buy at least 20 shares from the IPO, and in multiples of 20 thereafter.
The lot size can vary between IPO issues of different companies. While applying for IPO shares, you can find their lot size in the application form. It is also important to note that investors can bid for more shares by applying in different lot sizes.
How to Calculate the Lot Size of an IPO?
As stated earlier, lot size is the minimum number of shares one must purchase in a single transaction. To purchase more shares than the IPO lot size, investors must apply for its multiples.
Let’s understand this with a simple example below.
Company XYZ is issuing IPO shares with a lot size of 200 shares for each transaction. In this case, Mr Ray cannot bid for 1, 2 or 100 shares while applying for IPO issues. He has to bid for an entire lot of 200 shares instead. However, if he wishes to bid for more than 1 lot, he needs to apply for multiples of 200 shares.
1 lot =200 shares
2 lots = 400 (200*2) shares
3 lots = 600 (200*3) shares
4 lots= 800 (400*2) shares and so on.
If the maximum lot size is 20, Mr Ray can apply for a maximum of 4,000 shares.
Lot size is the minimum order an investor can place for an IPO. You must consider knowing the lot size before investing in an IPO as you need to pay for the entire lot. Also, companies will lock this amount in your savings amount until the allotment date. Before placing your bid, consider calculating the amount and its future impact on your finances keeping in mind the market volatility.