IPOs are an excellent way for a company to garner growth and expansion opportunities by issuing new stock. Initial Public offering (IPO) is a method where companies raise capital by seeking public investments. These public investments can be through different investors like retail individual investors, High Net worth Individuals (HNIs) or Qualified Institutional Buyers (QIBs). IPO application for all the categories is different. IPO applications below INR 2,00,000 fall under the retail category. On the other hand, to apply for IPO in the HNI category, the minimum application amount is INR 2,00,000.
What is HNI Category in IPO?
HNI stands for High Networth Individuals. This is a separate category specified in IPO investment under the Non-Institutional Investors(NII) section. This section also includes NRIs, HUFs, FPIs, Trusts and Companies.
HNI in IPO application is a part of the NII portion of the IPO allotment. As per SEBI guidelines, NIIs enjoy a 15% reservation of IPO shares in a private company. Also, the minimum application amount for HNIs is INR 2,00,000 in IPOs.
Rules for HNI IPO
The following are the HNI IPO rules:
- The minimum application for HNI is INR 2,00,000
- Based on investors’ application and NII over subscription, HNI allotment is done on a proportionate or lottery basis.
- IPO shares are allocated within six working days of the offer closing date.
- On the issue closing day, the cut-off time for NII category applications is 4 pm IST.
- Similar to retail applications, banks block the bid amount for HNI applications. If investors apply from a savings account, they will continue to earn interest on the blocked amount.
- The maximum bid for NII is the number of equity shares in the specified lots that must not exceed the size of the offer (excluding the QIB portion)
- This category also includes NRIs applying for more than INR 2,00,000
- HNIs cannot bid at the cut-off price. They have to bid in the issue price range at a fixed price.
- The NII portion must account for at least 15% of the offer.
- NII bids are considered for allotment only when received at or above the offer price.
How to Apply for an IPO in HNI Category?
HNIs willing to apply for IPO must fill out the ASBA or Application Supporting the Blocked Amount. If the investor is shortlisted for allotment, the blocked amount for IPO stock will be debited for their accounts. HNIs cannot use the UPI method through a broker while applying for an IPO. They have to access the net banking facility or physically submit the IPO application.
The following are the steps to apply for an IPO in the HNI category –
- As an HNI investor, you must first log in to your net banking portal.
- Under the IPO tab, click on ‘IPO Application’.
- You will reach the online IPO application system.
- You must select the HNI category here. Next, enter the number of lots and the price you would like to bid. The total bid amount should not be less than INR 2,00,000.
- The IPO system does not allow this to set the cut-off bid price. It is automatically at the highest price. Your application amount is blocked till the final allotment.
- The blocked amount is debited from the account only after the share allotment.
- In case of oversubscription, you may receive only a partial allotment of the IPO. Also, the debit amount is proportionately reduced.
Types of IPO Investors
There are different types of investors that subscribe to company shares during an IPO. Every category of investor has a reserved percentage of shares. The following are the different types of IPO investors –
Retail Individual Investors (RII)
Any Indian Resident, NRI or HUF applying for IPO up to INR 2,00,000 falls under this category. Also, this category reserves at least 35% shares of the total IPO offer. It allows investors to bid at the cut-off price and withdraw their bids until the allotment day. Furthermore, in the case of oversubscription, the allotment will be the minimum lot. If there is no oversubscription, the allotment will be in full.
Non-Institutional Investors (NII)
This category includes applicants for IPO with a minimum amount of INR 2,00,000 or above. Applicants include NRIs, HUFs, corporations, individual investors or trusts. The NIIs reserve at least 15% shares of the total IPO offer. Also, HNIs belong to this category and differ from other investors in terms of their investible surplus and net worth, which is more than two crores. Furthermore, these investors cannot bid at the cut-off price and withdraw their bid before allotment. In case of oversubscription, the shares are allotted proportionately.
Qualified Institutional Buyers (QIB)
Public Financial Institutions, Mutual Funds and Foreign Portfolio Investors belong to this category in IPO. This is not a common category like others. The companies must reserve at least 50% shares of the total IPO offer. Also, these investors must register themselves with SEBI to invest in an IPO. Furthermore, QIBs cannot bid at the cut-off price and cannot withdraw their bid before allotment.
How does HNI allotment work in IPO?
HNI allotment is determined proportionately or through a lottery system, depending on oversubscription in the Non-Institutional Investor (NII) category.
However, to participate, HNIs need to submit their IPO applications for the NII category by 4 p.m. IST on the closing day. Furthermore, bidding at the Cut-off Price is not allowed for HNIs.
Frequently Asked Questions
No, you cannot apply for an IPO under both HNI and retail categories. The application is likely to get rejected.
Yes, if any investor invests more than INR 2 lakh in an IPO will automatically fall under the HNI category.
It is dependent on the total IPO subscription. If the IPO is oversubscribed, then allotment will be proportional. If the IPO is not over-subscribed, then HNI will receive a full allocation.