November 24, 2025
7 mins read
When a firm puts its shares up for sale, not everyone can sell right away. This time limit is called the Lock-In Period. It mostly holds back the owners, early backers, and staff who got shares before the public sale.
Why is this needed? Picture this: what if all big backers sold shares on the very first day? Share prices would crash hard. The lock-in time for IPOs is set up to stop that from happening. It acts as a cooling-off time—often six months to one year—that helps keep the market calm right after the listing.
If you invest often, this period is worth watching. When those locked-in shares are freed up, the number of shares for sale jumps. That change alone can push prices, sometimes sharply.
The lock-in time in an IPO simply means that certain owners can't sell their shares for a set number of days. This usually lasts six months, but it can sometimes go up to a full year.
The goal is simple: it stops big investors from rushing out the door. The main owners and anchor investors must hold their shares. This shows they truly believe in the company. That calm helps build trust in the first few months of trading.
For small investors, knowing when the IPO lock-in time ends is key. Releasing many shares onto the market all at once can cause prices to jump around.
SEBI has clear rules about the IPO locking periods. These times change based on the type of investor:
Promoters (Main Owners): For up to 20% of shares after the sale, the lock is 18 months (it used to be 3 years). For shares beyond that, the time drops to 6 months.
Anchor Investors: Half their shares are locked for 90 days. The other half is locked for 30 days.
Non-promoters (Others): The lock-in is usually 6 months. This is less than the former 1 year rule.
Once these time limits are over, the shares can be sold freely in the market.
During this phase, anchor investors are stuck and cannot sell. Their continued presence shows the market is stable. These investors—who are usually large firms putting in over ₹10 crore—provide a soft shield against big drops in price.
Share prices can move wildly right after listing. The lock-in time works like a safety net. Once the time is up, the shares are free to trade. The stock price may rise or fall, based on who wants to buy and sell.
Look at a past case. Anchor investors had their sales limited in steps. Half their shares were locked for 90 days. The rest were locked for 30 days. This slow release stopped a sudden flood of selling.
In another IPO, the main owners had a six-month lock. Prices went up at first. But they dipped when those shares finally hit the market. This shows lock-ins help smooth things early but can cause sharp moves later on.
The lock-in time is there for stability. It stops major investors from leaving right away. It tells the market that insiders trust the firm’s future.
It also gives protection to small investors. If owners or anchors only aimed for a quick gain, trust would vanish. Holding periods prove true belief. This builds faith that the business is not just about short-term gains.
For investors, the end of a lock-in time is a key moment to watch. A big surge of new shares can lead to price changes.
The smart way is not to panic over small moves. Instead, focus on the basics: Is the firm growing well? Is it making a profit? Is it well run? If yes, quick dips might be chances to buy. If not, being careful may be a smarter move.
The IPO locking period is not perfect. Sometimes it sends the wrong message. A stock might look steady only because big investors are barred from selling. Small buyers can't know if insiders want to sell sooner.
Another risk is when the lock ends. If large holders sell all at once, prices can fall fast due to too many shares. It’s hard to sell shares during the lock-in. And price swings often become sharp once the period is over.
Additional Read: How To Apply For An IPO?
The lock-in time for an IPO brings a few key issues:
False demand: Investors cannot sell. This can create an unreal feeling of calm.
Price drop risk: Big sales when the lock ends can cause sudden drops.
Money limits: Locked cash cannot be used during this time.
Price swings: Once shares are free to trade, sharp moves often follow.
The IPO lock-in time has both good sides and bad sides. It ensures calm early on. It helps build trust. But it can also hide true demand. And it can cause price jumps after the time is up.
For investors, the main lesson is clear: don't just follow anchor investors. Instead, judge a company on its core business. Don't look only at who can't sell their shares.
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If an investor sells his shares before the lock-in period is over, he may have to pay a penalty to the underwriter which is usually 2% of the share value. Added to that, he may also be subject to tax on any profit made from selling the shares.
Yes, you can sell your shares during the lock-in period but you will be liable to pay a penalty. This is usually a loss of 10% of share value. Also, you will have to find a buyer who can pay such a penalty.
Yes, stock prices can fall after their lock-in period expires. This happens if investors sell their shares right after the lock-in period. In this situation, there would be an oversupply of shares in the market and low demand resulting in lowered stock price.
The lock-in period does not restrict retail investors. It is only applicable to promoters, non-promoters, and anchor investors.
Once the lock-in period expires, investors are free to trade any shares that they had to hold mandatorily before. Hence, there can be a selling pressure. Depending on the price of shares, investors can either make a profit or a loss.
Stay informed about upcoming IPOs and their lock-in periods by downloading the Bajaj Broking app. Get exclusive access to detailed insights, analysis, and key dates related to IPO launches. Make well-informed investment decisions and stay ahead of the market trends with our user-friendly app.
The lock-in period restricts you from selling your shares for a specific duration. It stabilizes the stock price post-IPO, but once the period ends, share prices may fluctuate due to increased selling activity.
For tax-saving investments, such as ELSS funds, the typical lock-in period is three years. During this time, you cannot redeem or sell your investments.
No, you cannot sell or exit your investment before the lock-in period ends. This period is imposed to prevent early exits and stabilize stock prices or protect long-term investments.
The lock-in period benefits both the company and investors by reducing short-term volatility and ensuring long-term stability in stock prices, thereby attracting more long-term investors to the market.
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