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The three categories

Retail, non-institutional and institutional investors bid in separate pools with separate reservations. Which set of percentages applies tells you something about the company before you have read a single financial statement.

Chapter 6 · Intermediate

You are not bidding against everyone. You are bidding against people in your own category, for a slice reserved for that category, and the size of the slice is set by which eligibility route the company took.

The three categories

Qualified institutional buyers (QIBs) — mutual funds, insurance companies, pension and provident funds with a minimum corpus, scheduled commercial banks, foreign portfolio investors other than individuals, development financial institutions, and a list of others the regulations name.

Retail individual investors (RIIs) — individuals applying for securities worth up to ₹2,00,000. That threshold is the whole definition. One rupee more and you are in the next category.

Non-institutional investors (NIIs) — as SEBI defines them, whoever does not fall in the other two. In practice: individuals applying for more than ₹2,00,000, and corporate bodies.

Two sets of percentages

Here is the part most investors have never been told. There are two allocation patterns, and which one applies depends on whether the company qualified on its own numbers.

A company meeting the profitability conditions can book-build voluntarily, and then:

  • retail not less than 35%,
  • non-institutional not less than 15%,
  • institutional not more than 50%.

A company that does not meet those conditions must use the compulsory book-built route, and then:

  • institutional at least 75% — and, in SEBI's words, "failing which the full subscription monies shall be refunded",
  • non-institutional not more than 15%,
  • retail not more than 10%.

Both sets are from SEBI's FAQ, read 30 September 2026.

What the second set is telling you

This is the free signal in the chapter.

If retail is capped at 10% and institutions must take at least 75%, the company did not meet the profitability route's conditions. The regulator's response to that is not to forbid the issue — it is to insist that the majority of it be sold to professional investors who can assess it, and to cut the retail share to a tenth.

Read the reservation table on the cover of any RHP and you learn, in one line, which kind of company you are looking at. It is the fastest piece of due diligence available, and it is on the first page.

And note the teeth on the 75%: if institutions do not take up three-quarters, the entire issue is refunded. The rule is not a preference.

Allotment: no discretion, and a lottery

When an issue is oversubscribed — demand above the shares on offer — the shares have to be divided. SEBI is unambiguous about how:

It is to be noted that there is no discretion in the allotment process.

Nobody chooses who gets shares. Within a category, allotment is proportionate. Anchor investors are the one exception and chapter 10 deals with them.

For retail there is a further rule that changes the arithmetic completely: allotment to each retail investor "shall not be less than the minimum bid lot, subject to availability of shares". You cannot be allotted half a lot. So when retail demand exceeds the retail portion by more than the number of lots available, the only way to give whole lots to some people is to give none to others — and that selection is a lottery.

This is why a heavily oversubscribed retail category produces a binary outcome. You get one lot or nothing, decided by a draw. Applying for more lots does not improve the odds per lot in a lottery-allocated category; it is one application per PAN either way.

The basis of allotment is published afterwards, with the category-wise demand and how the shares were divided. It is worth reading once, because it makes the mechanism concrete in a way no explanation does.

What oversubscription does to one application

At least 35% of the offer on the profitability route, at most 10% otherwise.

Set so that one lot costs roughly ₹15,000 at the upper end of the band.

Each assumed to be one lot, which is the common case at the minimum.

Chance that one application gets a lot

15.56%

Whole lots available
2,33,333
Applications
15,00,000
Retail category subscribed
6.4×

The retail category is subscribed 6.4×, and because nobody can be allotted less than one whole lot, the 2,33,333 lots are drawn by lottery among 15,00,000 applications. One PAN is one application, so these are the odds — there is no version of this where applying harder improves them.

A floor on the number of owners

One more requirement, easy to miss and occasionally decisive: a company cannot allot shares unless there are at least 1,000 prospective allottees. An issue that does not attract a thousand successful applicants does not proceed.

The point

Retail gets at least 35% when the company met the profitability conditions and at most 10% when it did not — which the cover page tells you before the financials do. Allotment has no discretion, is proportionate within a category, and becomes a lottery for retail when whole lots run out.

Check yourself

4 questions. Every answer is explained afterwards, including the ones you get right — guessing correctly is not the same as knowing. Score 70% or more and the chapter is marked done.

Question 1 of 4

MarketsHard
An IPO reserves at least 75% for institutions and not more than 10% for retail. What does that tell you?

0 of 4 answered. You can submit with questions unanswered — they simply score zero.

Now do it with your own numbers

An issue reserves not more than 10% for retail and at least 75% for institutions. Work out what that tells you about the company's eligibility before reading anything else in the document.

One of the two routes is available only to companies that meet a profitability condition. The other is what you must use if you do not.

Sources