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Recently, there have been many IPOs in the market. Businesses use this approach to raise capital. Moreover, it enables investors to invest in high-quality businesses. No wonder the initial public offering (IPO) has become a popular investment method. 

High-Networth Individuals (HNI) fall under the non-institutional investor (NII) category.  We have discussed different categories of investors in an IPO subscription in detail later in this blog.

Steps to apply for an IPO under the HNI category?

Retail investors who wish to invest up to Rs 2 lakh must fill out the ASBA (application supporting the blocked amount). A debit from the account only occurs if the investor is shortlisted for the allotment.

The IPO applications under the HNI category are similar to this. The steps are as follows:

  1. Start by logging into your net banking account.
  2. Click on “IPO application” in the IPO tab. 
  3. This will take you to the online IPO system.
  4. Investors must choose the HNI category there. Then, enter the number of lots and the price you would like to bid. The total amount should be more than Rs 2 lakhs.
  5. The HNI cannot choose the cut-off price. In the account, a block mandate at the highest bid price is created. By doing this, you will block the amount of the application till the final allotment.
  6. A debit from the account will occur only after the allocation of shares.
  7. There will be only a partial allocation in the event of an oversubscription of IPO. The debit from the account will be as per the allocation. 

Different types of investors in an IPO?

Diverse types of investors can subscribe to shares of businesses through an IPO. For each category, there is a reserved percentage of shares. The following is a list of different types of investors.

1. Retail individual investors (RII)

  • An NRI, a HUF, or an Indian Resident individual applying with up to Rs 2 lakh in funds falls under this category.
  • This category reserves for at least 35 percent of the total IPO offer. 
  • It allows bids at cut-off prices. RII investors can withdraw their bids up until allotment day.
  • In an oversubscribed IPO, the allotment shall be the minimum bid lot. If there is no oversubscription, then allocation will be in full.

2. Non-institutional investors (NII)

  • These include all applicants for IPOs over the amount of Rs 2 lakh. It includes  NRIs, HUFs, corporations, Indian individuals, and trusts.
  • The Non-institutional investors reserve 15% of the total IPO offer.
  • High net worth individuals (HNIs) fall into this category. They differ from other investors in terms of their investible surplus and net worth, which is more than two crores.
  • Investors cannot bid at the cutoff price. Also, they cannot withdraw their bid before the allotment.
  • In the event of oversubscription, allotments are proportionate.

3. Qualified Institutional Buyers (QIB)

  • Public financial institutions, mutual funds, as well as foreign portfolio investors can apply in this category.
  • It is not as common as other categories.
  • The IPO offer for this category must be a minimum of 50%.
  • Institutions must register with SEBI before applying.
  • Investors cannot bid at the cut-off price. Additionally, they cannot withdraw their bid even after the close of allotment.

Final Thoughts

Many investors wonder whether to invest as a retail or HNI investor. First, consider the company details and its market demand. Next, check if you have the funds set aside to apply for the IPO. Then, choose your investment strategy. If you have any questions, you can always consult a financial advisor.

Key Takeaways

  • HNIs are people with over two crores of investable assets.
  • HNIs cannot invest less than Rs 2 lakh in an IPO. They are not eligible for any discounts offered by the company.
  • An HNI should receive at least one share lot in oversubscription of IPO. An HNI won’t receive any allocations if it isn’t oversubscribed.
  • You cannot apply for both the RII and HNI categories.
  • Until allotment of shares, there will be no debit from your bank account.

FAQs

Q1: Can I apply to both the HNI and retail categories in an IPO?

Answer: No, an individual cannot apply in both retail and HNI categories. Rejection is likely if he does this.

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Q2: If an investor invests more than Rs 2 lakh in an IPO, does he automatically fall into the HNI category?

Answer: Yes, all investors who invest more than Rs 2 lakh in an IPO will be in the HNI category.

Q3: When I apply for an IPO in the HNI category, does that guarantee allotment of shares?

Answer: A HNI will receive full allocation if there is no oversubscription. If there is an over-subscription, then the allotment will be proportional.

Q4: What do you mean by the term cut-off price in an IPO?

Answer: Only RIIs have access to this option. Investors don’t have to select a price when applying. Investors receive shares at this price.

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Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.