Updated on March 19, 2023
The purpose of an IPO is to raise money to meet specific financial objectives. For this, it invites public subscription to its share capital. But while inviting public for a share in its capital, the company’s promoters may want to safeguard their stake in the company. A firm allotment helps meet this requirement.
In an IPO, there are various classes of investors that are eligible to participate and get an allotment of the shares. However, one of the many concerns for the promoters is to not let their share be diluted too much. Therefore, a portion of the IPO is set aside for the promoters, which means that they purchase a fixed percentage of shares at a price that is different than what is applicable to the public and usually higher than what is offered to the latter.
Other details of firm allotment
As per SEBI guidelines, other classes of investors that are eligible to invest in an IPO under firm allotment include
a. FII (Foreign Institutional Investors),
b. Development Financial Institutions,
c. Indian Mutual Funds,
d. Permanent Regular Employees,
e. Lead Bankers,
f. employees of the promoting companies.