Allotment Letter : Meaning in terms of Investment Markets

When a company issues shares, debentures or other securities, it issues allotment letters to its investors. These letters are issued to applicants who have subscribed for such securities or in pursuance of certain contracts entered into in that behalf. The allotment letter is a document of title that confirms the allotment of securities to the investor. In this article, we will explore the significance of allotment letters in investment and how they can be used in the market.

What is an Allotment Letter?

An allotment letter is a document that serves as proof of allotment of shares, debentures or other securities to the investor. The allotment letter contains important details such as the number of securities allotted, the price paid for the securities, the terms and conditions of the allotment, and the date of allotment. The letter is issued by the company to the investor once the allotment process is completed.

Importance of Allotment Letters

Allotment letters are important for both the company and the investor. For the company, the allotment letter serves as a legal document that confirms the allotment of securities to the investor. The company can use the allotment letter to maintain a record of all securities allotted to investors and to comply with legal requirements. For the investor, the allotment letter is an important document as it confirms the number of securities allotted, the price paid for the securities, and the terms and conditions of the allotment.

Negotiability of Allotment Letters

Allotment letters are negotiable documents, which means that they can be transferred from one person to another. If an investor wishes to sell their securities, they can do so by transferring the allotment letter to the buyer. The buyer can then use the allotment letter to claim ownership of the securities. However, it is important to note that the transfer of allotment letters is subject to certain conditions and legal requirements.

Using Allotment Letters in the Market

Allotment letters are frequently used in the secondary market. Investors who have been allotted securities can sell them in the market by transferring the allotment letter to the buyer. The buyer can then use the allotment letter to claim ownership of the securities. Allotment letters are particularly useful in cases where physical certificates have not been issued. In such cases, the allotment letter serves as proof of ownership of the securities.