In an initial public offering (IPO) process in India, three major categories of investors can apply for shares. It includes retail investors, HNI investors, and qualified institutional buyers (QIBs). And, of all the three investor categories, the High Net Worth Individual (H.N.I) category draws the most interest in the market despite having the lowest percentage of shares reserved for itself.
Let us quickly look at the IPO investor categories and the rules for HNI investors to bid in an IPO.
Different Types of Investors in an IPO
Retail Individual Investor: In this category, an Indian resident, NRI, and HUF can bid for shares worth up to ₹2 lakh, and 35% of the total IPO offer is for retail investors. Investors can submit bids at the cut-off price, which means the lowest range of the price band.
HNI Investors: HNI investors are high-net-worth individual investors. Individuals looking to invest over ₹2 lakh in the IPO should submit bids for shares under this category. 15% of the stock is for HNI investors in the IPO.
QIB Investors: Under this category, financial institutions like mutual funds, foreign portfolio investors (FPIs), and public financial investors can apply for the IPO. These financial institutions must be SEBI registered before applying for the IPO. The companies must reserve a minimum of 50% of the IPO offer for QIB investors compulsorily.
Anchor investors are a part of this category, and companies allocate shares from the IPO offer at a fixed price before the IPO opens for the public.
5 IPO Rules for HNI Investors
An individual can apply for an IPO only under the retail and HNI investor category. However, compared to the retail category the HNI investors must comply with few rules to make a successful IPO application.
The following are the five IPO rules that every H.N.I investor should know
Application Size: The minimum application size should be ₹2 lakh and a maximum of ₹5 lakh. Once applied, HNI investors can modify their IPO bids only if they increase the bid amount. For example, if the IPO application is ₹3 lakh, then High Net Worth Individual investors (H.N.Is’) can only change the bid between ₹3.01 and 5 lakhs. Also, the IPO application must be ASBA compliant.
Minimum Investable Assets: An HNI investor should have minimum investable assets worth ₹2 crores in possession.
Bidding Price: HNI investors cannot bid at the cut-off price, while the highest price of the bid range is blocked automatically for the IPO application. High Net Worth Individuals (H.N.Is) cannot receive any discount from the issuing company.
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Bid Withdrawal: Compared to retail applicants, who can withdraw their bid until the share allotment date, High Net Worth Individuals (H.N.Is) cannot withdraw their bid. They must take delivery of the shares once allotted.
Single Investor Profile: An individual can apply either as a High Net Worth Individual (H.N.I) or retail investor for an IPO. To make a valid IPO application in the HNI investor category, the individual must apply under a single investor profile, i.e., the High Net Worth Individual (H.N.I) category. The IPO application can be rejected if you apply under multiple categories from different trading or Demat accounts.
IPO Shares Allotment under HNI Category
Here’s how IPO shares are allocated under the High Net Worth Individual (H.N.I) category
- In case of a full or equal subscription of IPO in the High Net Worth Individual (H.N.I) category, HNI investors will get 100% of the bid quantity.
- In case of oversubscription in the category, HNI investors will get at least one lot guaranteed. Anything more depends on the status of the oversubscription
- In case of massive oversubscription in the category, shares are allotted through lottery.
The allocated shares are credited to the Demat account within six days from the IPO offer closing day, and there is no lock-in period for the High Net Worth Individual investors (H.N.I) category. Investors can sell shares on the day of the stock listing itself.
Steps of Apply IPO in the HNI Category
IPO investment in the High Net Worth Individual (H.N.I) category is through the ASBA IPO application facility available on the bank’s net banking website and mobile application. The steps to apply for IPO for HNI investors are:
- Login to the bank net banking or mobile application
- Go to the IPO section
- Select the IPO offers
- Fill out the IPO application with all details
- Choose the investor category and submit the application form To check the IPO status, you must go to the IPO order book page to check the details.
Benefits of investing in an IPO via HNI Category
The High Net Worth Individual (H.N.I) category is the most sought-after in the non-institutional investor category because
- the chances of stock allotment increase compared to the retail category.
- And it also lets an investor buy stocks worth more than ₹2 lakh at the issue price.
- HNI investors don’t have to register with SEBI, unlike QIB investors, who must register with SEBI to apply for higher amounts in the IPO process.
What is the High Net Worth Individual (H.N.I) category in IPO?
HNI investors fall under the non-institutional category, and they can make bids between ₹2 to 5 lakhs in the IPO, and 15% of the issue is for the High Net Worth Individual (H.N.I) category.
Who are qualified for the HNI category
Indian residents, NRI, and HUF are qualified to apply for an IPO under the High Net Worth Individual (H.N.I) category and should have minimum investable assets worth over ₹2 crores.
How can you apply for an IPO under the HNI category?
Applying for an IPO under the HNI category must be through the ASBA IPO application facility available on the bank’s net banking website and mobile application.