What is Minimum Subscription in IPO? 

When you follow Initial Public Offerings, one detail you will frequently come across is: minimum subscription. This requirement is a fundamental part of the IPO process and plays a major role in ensuring fairness, transparency and adequate funding for companies looking to raise capital from the public. As an investor, understanding minimum subscription for an IPO helps you assess the strength of an issue and understand what happens behind the scenes before a company gets listed on the stock exchanges.

In recent years, India has seen a high level of IPO activity, driven by strong investor participation, improved market sentiment and better regulatory oversight. With more investors entering the market, having clarity about the regulatory rules becomes essential. One such rule is the minimum subscription requirement. It is enforced by SEBI and supported by the Companies Act 2013 to protect investors and maintain stability in the primary market.

If you are planning to invest in IPOs, knowing what minimum subscription means and why it matters helps you make better decisions. It also allows you to judge whether the issue is likely to succeed or face cancellation due to lack of demand. This blog covers the purpose of minimum subscription, calculation, impact on investors and its regulatory significance in the IPO process.

What Does Minimum Subscription Mean? 

Minimum subscription refers to the minimum portion of the total issue size that a company must receive from investors during an IPO. As per current SEBI regulations, a company must secure at least 90 percent of the total shares offered to proceed with allotment. If this benchmark is not achieved, the issue is treated as unsuccessful, and the company is required to refund the entire application amount to all investors.

This requirement helps ensure that a company receives sufficient capital to meet its proposed objectives. Every IPO outlines its fundraising goals in its offer documents. If investors do not subscribe to at least 90 percent of the shares, it indicates low market confidence, concerns about the issuer’s financial health or broader weak market sentiments.

For most companies, achieving 90 percent subscription is compulsory. However, one exception exists. Infrastructure companies can proceed without meeting the 90 percent rule if they have verified alternative funding arrangements. SEBI requires stronger disclosures and firm funding commitments before permitting such exemptions.

In addition, the 90 percent requirement also applies to IPOs that consist entirely of an Offer for Sale (OFS) with no fresh issue. Even though the company is not raising new capital, SEBI still treats the full offer size as the benchmark for minimum subscription. This ensures consistency in the IPO process and prevents partial or weak demand issues from proceeding to listing.

The concept of minimum subscription is included in the Companies Act 2013 and supported by SEBI’s ICDR Regulations. These rules ensure that companies raising money from the public do so responsibly and that investors do not face unnecessary exposure to underfunded businesses.

Overall, minimum subscription for IPO protects retail and institutional investors by ensuring that only adequately funded companies move ahead with listing. It also reinforces trust in the primary market by preventing incomplete or undercapitalized projects from going public.

Understanding the Concept of Minimum Subscription 

When a company decides to raise money through an IPO, it sells a portion of its shares to the public. These shares could be newly issued, or they could be an offer for sale from existing shareholders, or a combination of both. Before the subscription period begins, the company, along with investment bankers and underwriters, determines the issue size, price band, objectives of the offer and the expected timelines.

During the subscription window, investors apply for shares. Applications come from different categories, such as retail investors, high net worth individuals, qualified institutional buyers and employees of the company. SEBI checks whether at least 90 percent of the offered shares receive valid applications. Valid applications are those that meet all regulatory checks, including complete documentation and payment confirmation. Any invalid, withdrawn or rejected applications are excluded from the calculation.

If the subscription falls below the 90 percent threshold after excluding invalid applications, the IPO cannot proceed. SEBI considers such an issue as under subscribed and instructs the company to refund investors. Earlier, companies were required to refund within 15 days, but under the current ASBA/UPI-based system, funds remain blocked in the investor’s bank account and are automatically released if the IPO fails. Actual refunds are only triggered in rare cases. If a genuine delay in release occurs, interest may apply as per SEBI rules.

Minimum subscription also acts as an indicator of investor confidence. Oversubscription reflects strong demand, whereas poor response signals scepticism about the company’s fundamentals or broader market conditions. Experienced investors keep track of subscription trends every day during the IPO window to understand market behaviour.

The rule also ensures adequacy of capital. For example, if a company plans to raise ₹1,000 crore to fund expansion and repay debt, but receives applications for only ₹700 crore, it will not have enough capital to carry out its plans. Allowing such an issue to proceed would create risks for shareholders and weaken the company’s financial stability. The minimum subscription rule prevents such situations.

How to Calculate Minimum Subscription? 

Minimum Subscription = 90 percent of the total shares offered in the IPO

For example, if a company offers 1,00,00,000 shares, the minimum number of shares that must be subscribed is 90,00,000. This calculation is always based on the number of valid applications received, excluding:

• Withdrawn applications
• Rejected applications
• Applications with incorrect or incomplete details
• Applications with payment failure

The calculation is performed by the investment bankers and underwriters at the close of the issue. They review the final subscription data from stock exchanges, tally investor categories and verify the number of valid bids.

If the valid subscription is below 90 percent, the issuing company must refund all investors. The company cannot proceed with partial allotment. Even if it receives 89.9 percent of valid bids, the IPO is considered unsuccessful.

Let us look at a simple example:

Total issue size: 50,00,000 shares
Valid applications received: 46,00,000 shares
Percentage subscribed:
46,00,000 / 50,00,000 × 100 = 92 percent

Since 92 percent exceeds the minimum requirement, the IPO can proceed.

If valid bids were only 40,00,000 shares, the subscription would have been 80 percent. In such a case, the issue would be cancelled.

Benefits of the Minimum Subscription Requirement 

The IPO minimum subscription rule serves several important functions. As a regulatory safeguard, it promotes fairness, investor confidence and strong financial practices. Here are the key benefits explained in detail.

Protects investor interests 

One of the biggest benefits of the minimum subscription requirement is investor protection. When an IPO receives low demand, it suggests concerns about business stability, valuation, financial performance or market conditions. Allowing such an issue to proceed would expose investors to risk.

With the 90 percent rule in place, you can invest with the assurance that companies must achieve a reasonable level of investor support before allotting shares. If the issue fails to meet this requirement, your entire application amount is refunded within 15 days.

Ensures adequate capital for the company 

Businesses raise money through IPOs to finance their expansion plans, product development, debt repayment or working capital needs. If a company does not receive enough funds, it may struggle to complete its plans. The minimum subscription rule ensures that companies raise sufficient funds to meet their objectives. This strengthens operations and reduces the risk of financial instability after listing.

Helps you assess market sentiment 

Subscription data gives you real time information about market behaviour. Strong subscriptions show positive sentiment, while weak response signals caution. When several IPOs fail to meet the 90 percent requirement, investors often interpret this as reduced confidence in the markets. This insight helps you manage your investment decisions more effectively.

Encourages transparency and regulatory compliance 

The minimum subscription rule promotes transparency. Companies are required to disclose subscription figures every day during the IPO period. This gives you clear visibility of the demand trend and helps SEBI maintain orderly conduct in the primary market. Compliance with the minimum subscription rule also supports market integrity.

Reduces the risk of failed or unstable IPOs 

If an IPO proceeds without raising enough capital, the company may face operational challenges soon after listing. This may lead to price volatility or even long term underperformance. The minimum subscription rule prevents such outcomes by ensuring that only well subscribed and adequately funded issues reach the market.

Builds long term market trust 

When investors see that SEBI enforces strict rules to protect their interests, they feel more confident participating in IPOs. This trust strengthens the primary market and encourages broader participation from retail and institutional investors. A stable IPO market is essential for companies seeking capital and for investors looking for opportunities.

Important Details About Minimum Subscription 

Here are some crucial details every investor should know:

• Minimum subscription requirement applies only to IPOs.
• The threshold is fixed at 90 percent of the total issue size.
• Funds are blocked through ASBA/UPI and automatically released if the IPO does not meet minimum subscription.
• Infrastructure companies can seek exemption if they have confirmed alternative funding.
• Subscription figures are updated continuously on exchange platforms.
• Undersubscribed issues below 90 percent are cancelled automatically.
• The rule is part of the Companies Act 2013 and SEBI’s ICDR Regulations.

These details make the requirement a powerful safeguard for investors and the capital market.

Conclusion 

Minimum subscription is an important requirement that ensures stability, fairness, and responsible fundraising in the IPO market. As an investor, knowing the requirements helps you understand the strength of an issue, assess market conditions, and appreciate how SEBI protects your investment. The 90 percent rule ensures companies raise adequate capital and prevents underfunded or weak offerings from entering the market. If a company fails to meet this requirement, you receive your money back without any loss.

This rule supports transparency and helps maintain trust in the primary market. When you evaluate IPOs in future, monitoring the minimum subscription data will give you clarity about investor sentiment and help you make informed decisions.