Understanding what is IPO lot size?

Investing in an Initial Public Offering (IPO) can be an exciting opportunity for investors looking to buy shares of a company before it gets listed on the stock exchange. However, terms like IPO lot size can seem confusing, especially for first-time investors. So, what exactly is an IPO lot size, and why does it matter? In this blog, we’ll break down the concept of IPO lot size, how it impacts your investment, and what you should keep in mind while applying for IPO shares. Let’s get started!

What is IPO Lot Size?

The IPO lot size refers to the minimum number of shares an investor can buy when applying for an Initial Public Offering (IPO). Investors cannot purchase shares in any random quantity; they must buy at least the minimum number set by the issuing company, as approved by SEBI (Securities and Exchange Board of India).

For example, if the lot size of an upcoming IPO is 30 shares, investors must purchase at least one lot (30 shares). If they want more, they must buy in multiples of 30, such as 60, 90, or 120 shares.

To participate in an IPO or trade in the stock market, investors need a demat account, which securely holds shares and securities in digital form. Opening a demat account is essential for smooth trading and investment management.

Types of Lot Sizes in an IPO

When applying for shares in an IPO, investors encounter two key lot sizes: Minimum Lot Size and Maximum Lot Size. These terms define how many shares investors can purchase within specific limits set by the issuing company.

1. Minimum Lot Size

The Minimum Lot Size is the smallest number of shares an investor can apply for in an IPO. Investors cannot purchase fewer shares than this set limit. This ensures only serious investors participate in the offering.

Example:

If a company sets a lot size of 100 shares and a minimum purchase requirement of three lots, an investor must apply for at least 300 shares (3 lots x 100 shares).

2. Maximum Lot Size

The Maximum Lot Size is the highest number of shares an investor can apply for. It prevents a single investor from acquiring too many shares, ensuring fair distribution among all applicants.

By defining these lot sizes, companies maintain a balanced share allocation, making the IPO process transparent and inclusive.

How to Calculate the Lot Size in an IPO?

The lot size in an IPO indicates the minimum number of shares investors must purchase. This information is clearly mentioned in the IPO document issued by the company.

Example:

Suppose a company plans to issue 10,000 shares in its IPO, with a minimum lot size of 200 shares. This means an investor must buy at least one lot (200 shares) to participate. They can purchase additional shares only in multiples of the lot size, such as 400, 600, or more, up to the maximum lot size set by the company.

Formula to Calculate Total Lots Issued:

Using the example:

Total lots issued = Total number of issued shares / minimum lot size Total lots issued 

= 10000/200 = 50 lots

Maximum Lot Size Example:

If the maximum lot size is 6 lots, investors cannot buy more than 6 lots (200 x 6 = 1,200 shares) in the IPO. This limit ensures fair allocation and prevents a few investors from monopolizing the shares.

Understanding this calculation helps investors plan how many shares they can apply for in an IPO within the allowed limits.

What is Market Lot Size in an IPO?

The market lot size refers to the minimum number of shares you can trade on the stock exchange after an IPO closes. For example, if a company has a market lot size of 200 shares, you must buy or sell at least 200 shares in one transaction. The IPO lot size, which applies during the IPO subscription, might be equal to or larger than the market lot size. For instance, during the IPO, the company might require a minimum purchase of 400 shares (two lots), while after listing, the minimum tradeable amount could be just 200 shares.

How Much Can Investors Invest in an IPO?

When applying for shares in an IPO, investors must bid for at least the minimum number of shares specified by the company. The maximum number of shares they can apply for also depends on the company’s set limit. This helps investors estimate the maximum amount they can invest based on the share price and maximum lot size.

However, investment opportunities aren’t limited to IPOs. Before companies go public, their shares are available in the unlisted market. These are shares of private companies not yet listed on stock exchanges. Platforms like Precize provide access to such shares, allowing investors to explore private equity and private credit opportunities. By reserving access to Precize, you can diversify your portfolio with unique investment opportunities beyond traditional asset classes.