IPO Investor Overview

An IPO investor is a person or entity that buys shares offered by a company's initial public offering (IPO), commonly in anticipation of profit. Purchase of the IPO shares varies from buying shares in the secondary market. Upon closure of the IPO, the company distributes the shares within 7 days.

IPO Investor Categories

Various types of investors are permitted to subscribe to an IPO, and every category has rules of its own for application processes, reservation proportions, and allotment procedures.

Who is an RII?

• Indian resident individuals
• Non-resident Indians (NRIs)
• Hindu Undivided Families (HUFs)

Retail investors belong to this category if their aggregate application size is below ₹2 lakhs.

Key characteristics of RII:

• Bidding at the Cut-off Price: Retail investors have the flexibility to place bids at the cut-off price.
• Bid Withdrawal: Retail investors can also withdraw their bids while the IPO remains open.

Retail Reservation Rules in IPO

Every IPO has a reserved quota of shares specifically for retail individual investors. The quantity of shares reserved for this category may differ depending on various factors, such as the nature of the issue.

Allotment Basis for Retail Category (RII)

• Not oversubscribed: Full allotment will be given to all applicants.
• Oversubscribed: Allotment will be done through a lottery. At least one lot will go to all applicants, irrespective of the number of lots they have applied for.

IPO Retail Investor Limit

• Maximum Investment: A retail investor can invest up to ₹2 lakhs in an IPO.
• Option for Over ₹2 Lakhs: If an investor wants to invest more than ₹2 lakhs, they will need to apply under the Non-Institutional Investor (NII) category.

Retail Investor Lock-in Period

No Lock-in Period: Retail investors can sell their IPO shares once they are listed and tradable on the stock exchange(s).

Tips for Retail Investors in an IPO

• Apply at Cut-off Price: Always apply at the cut-off price to be sure of getting it.
• Apply for 1 Lot: In case of oversubscription of the IPO, apply for just 1 lot per IPO application.
• Maximize Allocation: To make your chances stronger, apply through more than one account in the name of your family members.

The NII category is for those investors bidding more than ₹2 lakhs in an IPO. This category encompasses Indian resident individuals, NRIs, HUFs, companies, corporations, educational institutions, societies, and trusts. As opposed to Qualified Institutional Buyers (QIBs), non-institutional investors are not required to get registered with SEBI.

Non-institutional investors bidding more than ₹2 lakhs are usually known as high-net-worth individuals (HNIs). This category is generally referred to as the IPO HNI category.

NII Subcategories

The NII category is further categorized into two subcategories:

NII Investor IPO Limit

The minimum purchase size for non-institutional investors is ₹2 lakhs. The two subcategories have the following limits:

IPO NII Allotment Process

sNII or sHNI Allotment Process

1. sNII IPO not subscribed in full: In case the IPO in the sNII subcategory is not subscribed in full (<1x), full allotment will be given to all applicants.
2. sNII IPO oversubscribed: If the IPO gets oversubscribed (>1x) in the sNII category, allotment will be made on a proportionate basis, depending upon the minimum size of application (~₹2 lakh). Allotment will be made by a lottery system.

bNII or bHNI Allotment Procedure

1. bNII IPO not subscribed: If the bNII subcategory IPO is not subscribed completely, allotment shall be in full to all applicants.
2. bNII IPO oversubscribed: If the IPO is oversubscribed in the bNII category, a minimum application value (~₹2 lakh) will be allotted to every applicant, depending on the availability of equity shares under the bNII segment. The allotment will be by lottery.

NII Reservation Rules

The NII segment has an earmarked amount of total shares in an IPO, which varies with the issue type. The rules of reservation are as follows:

NII Lock-in Period

No lock-in period: Both NII and HNI investors are allowed to sell their allotted IPO shares on the listing day.

Definition of QIBs

QIBs are institutional investors registered with SEBI and are qualified to invest in IPOs under the QIB category. Some of them are:

• Mutual Funds
• Commercial Banks
• Public Financial Institutions
• Foreign Portfolio Investors (FPIs)

QIBs invest significant amounts in IPOs and are institutional investors such as LIC, Nippon India Mutual Fund, Goldman Sachs, Kuber India Fund, Elara India Opportunities Fund, and BNP Paribas Arbitrage.

QIB Investment Characteristics

• High-ticket investments: QIBs invest large sums, tend to subscribe to high-ticket IPOs
• No bid withdrawal facility: After placing a bid, QIBs are unable to withdraw their bids
• Investments on the last day: QIBs usually place their bids on the final day of the IPO subscription period

QIB Quota in IPO

QIBs are allocated a specific portion of the total IPO shares. The percentage depends on the type of IPO:

QIB Holding Period

• No lock-in period for QIB investors for IPO shares, allowing them to sell immediately once the shares start trading
• QIBs acting as anchor investors have a lock-in period, typically around 30 days from the listing date

QIB Vs HNI/NII Comparison

Eligible employees of the listing company can buy shares in the IPO under a reserved category designated only for them.

Eligibility Criteria

• Regular or permanent employees of the company, the holding company, or a subsidiary of the company whether located in India or elsewhere
• Employees who are closely connected to a full-time or part-time director of the company
• Employees related to the entity whose financial statements are consolidated with the issuer's financials

Employee Quota & Benefits

• Quota: The employee reservation quota cannot exceed 5% of the company's post-issue paid-up capital
• Discount: Companies often provide a discount (up to 10%) on the IPO price for eligible employees
• Investment Limit: The employees can apply for shares under this category but can apply a maximum of Rs 2 lakhs if they want to take advantage of the employee discount

IPO Employee Lock-in & Sale

No lock-in period for employees; they can sell their shares as soon as the IPO is listed on the stock exchanges.

Some IPOs have a shareholder reservation category in which current shareholders of the parent company are accorded priority in the IPO.

Eligibility Criteria

• Existing shareholders (individuals and HUFs) holding shares as on a given date are eligible
• Shareholders can apply in the general retail or employee category also

Shareholder Quota & Benefits

• Quota: Shareholders can apply for the total amount of shares available in this category
• Discount: Certain companies give a discount to shareholders, like the employee discount
• Bid Limit: Shareholders can bid for up to the maximum number of shares available under this category
• Increased Chances: Shareholders have higher chances of allotment in the shareholder reserved category

Lock-in Period

No lock-in period is applicable for shares bought under the shareholder category. Shares can be sold after the IPO is listed on exchanges.

Anchor investors are big financial institutions that invest a large sum of money in the IPO prior to its opening to the public.

Regulations for Anchor Investors

• Eligibility: Institutional investors alone can apply as anchor investors. They should not be promoters, promoter groups, or related parties
• Investment Amount:
  • Mainboard IPO: Rs 10 crore minimum investment
  • SME IPO: Rs 1 crore minimum investment
• Bidding: Anchor investors can bid one day prior to the opening of the issue
• Bidding Restraints: After anchor investors have made a bid, they are not allowed to change or withdraw it
• Payment: The bid amount must be paid in full at application time

Anchor Investor Quota

60% of the share of QIB is reserved for anchor investors, of which one-third is earmarked for domestic mutual funds.

Anchor Investor Lock-in Period

• 30 days: For 50% of shares bought by anchor investors
• 90 days: For the remaining 50% of the shares from the allotment date

Role of Anchor Investors in the IPO

• Market Confidence: The anchor investor participation gives a high degree of confidence in the IPO and can boost investor interest
• Price Discovery: Anchor investors help achieve improved price discovery in the IPO process

IPO Date for Anchor Investors

• Start and End Date: The IPO issuance to anchor investors starts and ends a day before the IPO opens to the public
• Bidding Period: Anchor investors have a single day to place their bids
• Allocation: Allocation to anchor investors will be done on the same day in the evening after the bidding period has closed