IPO Guide

IPO Investors

Types of IPO Investors

Understanding different investor categories becomes essential for investors who aim to purchase an Initial Public Offering (IPO). There are four investor classifications within the Indian IPO marketplace.

Retail Individual Investors (RII)
Non-Institutional Investors (NII) (HNI investors)
Qualified Institutional Buyers (QIBs)
Eligible Employees
Eligible Shareholders
Anchor Investors

Every investor group possesses specific rules regarding reservations along with unique methods for allotment and mandatory lock-in terms. Each group of investors will be examined individually.

1. Retail Individual Investors (RII)

Who Are Retail Investors in an IPO?

Individual investors who want to participate in IPO shares through a single application can do so until they reach ₹2,00,000.

Retail Reservation Rules in IPO

The IPO scheme establishes a mandatory requirement of preserving at least 35% of new shares for Retail Investors according to SEBI guidelines.
The IPO receives lottery-based allotment whenever high demand occurs.
Retail investors need to apply at the cut-off price, but QIBs and NIIs do not have this requirement.

Allotment Basis for Retail Investors

All retail applicants will obtain IPO shares when the offer receives fewer subscriptions than the available offering.
The SEBI fair allotment process determines the lottery system after an IPO is fully subscribed.

Retail Investor IPO Limit

Maximum application size: ₹2,00,000 per PAN.
Each retail investor may submit multiple applications from various Demat accounts that belong to different PAN holders.

Lock-in Period for Retail Investors

After the IPO exits the stock exchange retail investors obtain freedom to sell their shares because there exists no required waiting period.

Tips for Retail Investors in an IPO

The cut-off price applies for maximum success in securing an allotment.
Retail investors should examine the current Grey Market Premium (GMP) to understand market opinion.
Retail investors should utilize various Demat accounts belonging to different family members to enhance their odds of secure allotments.
Conduct a financial assessment and examination of fundamental company data before initiating your investment.

2. Non-Institutional Investors (NII) (HNI Investors)

Who Are NII Investors?

The allocation process for IPOs by Non-Institutional Investors (and High Net Worth Individuals) requires applications exceeding ₹2,00,000.

NII Subcategories

NIIs are divided into two:

Small HNI (sNII): Investment between ₹2,00,000 - ₹10,00,000.
Big HNI (bNII): Investment above ₹10,00,000.

NII IPO Limit & Reservation Rules

Prudent reservation applies to NIIs who can subscribe to 15% of each IPO issue.
NII investors have limitations that prevent them from using cut-off price bids because they must place exact bidding amounts.

IPO NII Allotment Process

Every NII applicant receives allocated shares whenever the total available amount within this group remains less than the total subscription.
In the case of oversubscription and non-lottery basis, the issuing process allocates shares proportionally.

NII Lock-in Period

NII investors have no requirement to lock their shares because they can sell them immediately upon the listing day.

3. Qualified Institutional Buyers (QIBs)

Who Are QIBs?

QIBs include:

Mutual Funds
Insurance Companies
Banks
Foreign Institutional Investors (FIIs)
Pension Funds

QIB Quota in IPO

The IPO distribution requires that QIBs maintain at least a 50% stake in the offered shares.

QIB Holding Period

QIBs must maintain their shares locked until the stock receives its license as a public company.

QIB Vs. HNI/NII (Mainboard)

Feature	QIB	NII/HNI
Min. Investment	No limit	₹2,00,000+
Reservation	50%	15%
Lock-in	Until listing	No lock-in
Allotment	Proportionate	Lottery

4. Eligible Employees (IPO Employee Quota)

Who Are Eligible Employees?

Company employees can invest in an IPO under a separate reserved category.

IPO Employee Benefits

Discounted Price: Some IPOs offer 5-10% discount.
Higher Allotment Chances: 5% of the issue size is reserved for employees.

IPO Employee Lock-in Period

No lock-in, employees can sell shares on listing day.

5. Eligible Shareholders (Shareholder Quota in IPOs)

Who Are Eligible Shareholders?

Investors holding shares of the parent company are eligible to apply under the Shareholder Quota in certain IPOs.

Advantages of Shareholder Quota

Better allotment chances than retail/NII categories.
Can apply in both retail & shareholder categories (if under ₹2,00,000 in retail).

Shareholder Quota Limits

Eligibility: Must hold at least one share of the parent company before the IPO record date.
Lock-in Period: No lock-in; shares can be sold on listing day.

6. Anchor Investors

Who Are Anchor Investors?

Anchor Investors are large institutions that invest before the IPO opens for the public to provide stability.

Rules for Anchor Investors

Minimum investment: ₹10 crore.
Maximum shares reserved: 60% of QIB quota.

IPO Anchor Investor Lock-in Period

50% of shares are locked for 30 days after listing.
The remaining 50% is locked for 90 days.

IPO Date for Anchor Investors

Anchor investors bid one day before the IPO opens to the public.

Comparison of IPO Investors in India

Investor Type	Reservation	Investment Limit	Lock-in Period	Allotment Basis
Retail (RII)	35%	Up to ₹2 lakh	No Lock-in	Lottery
NII/HNI	15%	₹2 lakh+	No Lock-in	Lottery
QIB	50%	No Limit	No Lock-in	Proportionate
Shareholder	Varies	No Limit	No Lock-in	Proportionate
Employee	5%	No Limit	No Lock-in	Proportionate
Anchor Investor	60% of QIB quota	₹10 Cr+	30-90 days	Proportionate

FAQs about IPO Investors in India

1. Is a retail investor eligible to apply in both the retail and NII (HNI) categories?

No, an investor is not eligible to apply in both the Retail (RII) and NII (HNI) categories under the same PAN. If a retail investor desires to apply for an amount exceeding ₹2,00,000, they need to apply under the NII (HNI) category and not the retail category.

2. Can I make an application for an IPO in more than one Demat account?

Yes, you can make an application through more than one Demat account held in different PANs (e.g., members of a family). But more than one application from the same PAN will be rejected.

3. What if an IPO is under-subscribed?

If an IPO is under-subscribed in any category:

Retail, NII, or QIB investors are allotted the full number of applied shares.

The remaining shares can be carried forward to a different category or can be withdrawn by the company.

4. How does SEBI provide fair allotment in cases of oversubscribed IPOs?

SEBI requires that:

Retail allotment is by a lottery system so as to provide fair distribution.

NII & QIB allotment is in proportion to the bid amount.

5. Can I apply under both the Retail and Shareholder categories?

Yes, if you fall under the Shareholder Quota, you are eligible to apply in both Retail and NII categories, if your overall investment in the Retail category is still below ₹2,00,000.

6. What is the cut-off price in an IPO, and who can apply for it?

The cut-off price is the last price decided in the process of book building.

Retail category and employees are eligible to apply at the cut-off price, but NII and QIB need to quote a bid price.

7. May I cancel or change my IPO application once it has been submitted?

Yes, you can cancel or change your IPO application prior to the closure of the IPO bidding via your broker or bank.

However, post-deadline changes are not permitted.

8. What if I do not receive an allotment of an IPO?

If you fail to get an allotment:

Your amount of the IPO application will be refunded in full within a few days of the allotment process.

9. Can I apply for an IPO on the last day of bidding?

Yes, but it's advisable to apply early to stay away from technical issues. Banks & brokers might have cut-off timings on the last day.

10. How does Grey Market Premium (GMP) affect IPO applications?

GMP is the unofficial premium at which IPO shares are traded prior to listing. High GMP shows good demand, but it doesn't assure listing gains.

11. Why are QIBs prioritized in IPO allotments?

QIBs (Insurance Companies, Mutual Funds, etc.) bring market stability, hence SEBI requires 50% booking for them in book-built IPOs.

12. Whether an NRI can invest in Indian IPOs?

Yes, NRIs can invest in IPOs via an NRE/NRO account maintained in conjunction with a Demat account in India. However, certain IPOs might restrict NRI involvement.

13. How long will I have to wait before I can sell IPO shares after allotment?

Retail, NII, Shareholders, and Employees are able to sell shares immediately on listing day.

QIBs are required to hold shares until listing.

Anchor Investors are subject to a lock-in period (30-90 days).

14. What is the lowest and highest amount of investment for an IPO?

Retail Investors: ₹15,000 (min) to ₹2,00,000.

NII (sHNI & bHNI): ₹2,00,001+ (no upper limit).

QIBs & Anchor Investors: No minimum or maximum investment limit.

15. Is it possible to sell IPO shares prior to listing?

No, you cannot sell allotment shares prior to listing. Yet, certain investors sell their application in the grey market prior to allotment.

16. What is the difference between a Book-Built IPO and a Fixed Price IPO?

Book-Built IPO: Price is set according to investor demand during bidding.

Fixed Price IPO: The issue price is decided beforehand by the company.

17. How do Anchor Investors affect IPO pricing?

As Anchor Investors invest one day prior to the opening of the IPO, their participation makes retail and institutional investors more confident, which generally results in greater demand.

18. Is there a provision to apply for an IPO via UPI?

Yes, IPOs can be applied for through ASBA (Application Supported by Blocked Amount), utilizing UPI for convenience of the transaction.

19. Is there any penalty for selling the shares of the IPO as soon as it lists?

No, retail investors are free to sell shares at any time after listing, but long-term holding is advisable for quality IPOs.

20. Are employees guaranteed allotment of IPO in the Employee Quota?

No, allotment to employees will be based on a number of applications and stock available. In case of oversubscription, allotment will be proportionate.

21. What happens if an IPO price band is changed after the commencement of bidding?

The IPO price range can be updated during the offer period, and investors have to manually adjust bids if needed.

22. How is the IPO listing price determined?

Listing price is a function of demand, grey market movement, and general market mood.

In the event of very heavy oversubscription of an IPO, listing gains are most likely.

23. Are there any differences between SME IPOs and Mainboard IPOs?

Yes, SME IPOs are for small and medium-sized companies and have:

Lower capital requirements.

More risk & volatility than mainboard IPOs.

More stringent eligibility for subscribers (typically HNIs & Institutions).

24. How can I check IPO allotment status?

You may check the allotment status at:

Registrar's website (eg, Link Intime, KFintech).

Stock exchange websites (BSE, NSE).

25. What is the consequence of an IPO failing SEBI's subscription criteria?

If an IPO fails to secure the required subscription, it gets canceled and investors are refunded full amounts.