Applying for an IPO as a High Net-worth Individual (HNI)

An Initial Public Offering (IPO) presents a valuable opportunity for investors to participate in the early stages of a company’s growth by purchasing shares when they first become publicly available. Among the various investor categories, the High Net-worth Individual (HNI) category holds a distinctive position with specific eligibility criteria, application processes, and allocation mechanisms. Understanding how to apply for an IPO under the HNI category is crucial for investors who meet the financial thresholds and wish to capitalise on this investment avenue.

This guide explores the HNI category in IPOs, eligibility criteria, the application and allotment process, key terms, benefits, and considerations for HNI investors.

The HNI category in an IPO refers to a segment of investors who have a high financial capacity to invest substantial amounts in public offerings. In India, IPO subscriptions are divided broadly into three categories: Retail Individual Investors (RIIs), Non-Institutional Investors (NIIs), and Qualified Institutional Buyers (QIBs). HNIs typically fall under the NII category, characterised by investment amounts exceeding ₹2 Lakhs.

The Securities and Exchange Board of India (SEBI) mandates this segmentation to ensure fair allocation and to address different investor risk appetites. The HNI category is distinct because it allows investors to bid for shares in larger quantities than retail investors, subject to minimum bid requirements and regulatory norms.

To apply under the HNI category, investors must meet specific financial and documentation requirements:

• Minimum Investment Amount: Typically, the minimum application value for HNIs is ₹2 Lakhs or more per IPO application. This sets HNIs apart from retail investors, whose application limit is usually capped at ₹2 Lakhs.
  

• KYC Compliance: Investors must complete the Know Your Customer (KYC) formalities, including submitting valid identification documents like Aadhaar card, PAN card, passport, or voter ID.
  

• Demat Account: A demat account linked to a bank account is mandatory for applying and allotment of shares.
  

• Category Classification: Investors must ensure they are correctly categorised under NII/HNI by their brokers during the IPO application process.
  

Notably, High Net-worth Individuals are not limited to a single application and can place multiple bids, subject to regulatory conditions.

The process for HNIs to apply for IPOs is straightforward but involves several key steps such as:

Step 1: Accessing the IPO Application

Investors can apply for IPO shares through their stockbroker or online trading platforms. The IPO application form will include options to select the investor category, where HNIs must choose the NII or HNI segment.

Step 2: Using ASBA Mechanism

The Application Supported by Blocked Amount (ASBA) process is mandatory for IPO applications. This involves the investor authorising their bank to block the application amount in their account without debiting it upfront. Only after successful allotment is the amount debited, ensuring efficient fund management.

Step 3: Placing Bids

HNIs can bid for shares within the specified price band announced by the company. Bids must be for multiples of the bid lot, which defines the minimum number of shares per application.

Step 4: Bid Submission and Mandate Blocking

Upon submitting the bid, the amount is blocked in the investor’s bank account via the block mandate system. This reserved amount cannot be used until the IPO allotment decision is made.

Step 5: Waiting for Allotment

Post subscription closure, the company reviews bids and allots shares based on demand and oversubscription rules.

IPO allotment for HNI investors generally follows these principles:

• Proportional Allotment: If the IPO is oversubscribed, shares are allotted proportionally based on the number of bids received.
  

• Lottery System: In case of high oversubscription, a lottery mechanism may be employed to ensure fair distribution.
  

• Cut-off Price Allotment: If investors bid at the cut-off price, shares are allotted at this price.
  

• Refund Process: Unsuccessful applicants receive refunds for the blocked amounts within a stipulated timeframe.

The allocation process for HNIs differs from the retail segment primarily due to higher bid amounts and proportional allotment methodology.

Getting familiar with the terminology related to HNI IPO applications will help you better understand each stage of the application and allotment process. Following are some of the key terms along with their meanings:

• Bid Lot: The fixed number of shares constituting one bid, varying by IPO.
  

• Cut-off Price: The final price determined by demand at which shares are allotted.
  

• Block Mandate: Authorisation given to a bank to block funds for IPO application.
  

• ASBA: Application Supported by Blocked Amount, a secure application and payment mechanism.
  

• Bid Price: Price within the band at which investors wish to apply.
  

• Application Form: Document submitted to apply for IPO shares.

In an Initial Public Offering (IPO), investors are broadly classified into distinct categories based on their investment size, financial capacity, and regulatory status. Understanding these categories helps clarify the allocation process and the roles different investors play in the IPO ecosystem.

• Retail Individual Investors (RIIs): These are individual investors, including resident Indians, NRIs, and Hindu Undivided Families (HUFs), who apply for shares up to ₹2 lakhs. RIIs form a significant portion of IPO participants and are allocated a minimum quota of shares (usually 35% for companies with consistent profits). They bid at the cut-off price and benefit from capped investment limits that allow broad participation.

• High Net-worth Individuals (HNIs) / Non-Institutional Investors (NIIs): This category includes individual investors and entities applying for shares worth more than ₹2 lakhs. HNIs typically have a higher financial capacity and can place larger bids compared to retail investors. They fall under the NII category, which also includes trusts, companies, and other non-institutional entities. HNIs have a reserved quota (around 15%) and enjoy the flexibility to place multiple bids and withdraw applications before allotment.

• Qualified Institutional Buyers (QIBs): These are institutional investors such as mutual funds, banks, insurance companies, and foreign portfolio investors registered with SEBI. QIBs bring substantial capital and expertise to the IPO process, often influencing price discovery and market confidence. They are allocated the largest share portion (typically 50%) and have restrictions such as a 90-day lock-in period post-IPO.

• Anchor Investors: Introduced by SEBI in 2009, anchor investors are a subset of QIBs who invest ₹10 crore or more before the IPO opens to the public. Their early commitment helps build investor confidence and attract broader participation. Anchor investors get shares allocated one day before the public issue and are subject to a 30-day lock-in period. They are excluded from merchant bankers, promoters, and their relatives.

These investor categories differ in terms of investment motivation, size, reserved quotas, and regulatory requirements, collectively contributing to a balanced and fair IPO subscription process. High Net-worth Individuals, in particular, occupy a crucial niche by bridging retail and institutional investment scales, enabling significant participation with tailored allotment mechanisms.

Benefits

• Larger Bid Sizes: HNIs can apply for larger lots, enabling significant portfolio allocation.
  

• Access to Institutional Allotments: Sometimes, HNIs have access to portions of shares reserved for non-institutional investors.
  

• Investment Diversification: Investing in IPOs under the HNI category allows portfolio diversification into new and promising companies.

Considerations

• Higher Minimum Investment: The higher bid size requirement necessitates careful financial planning.
  

• Oversubscription Risk: Shares may be allotted proportionally, reducing expected allocation.
  

• Market Volatility: Post-listing price fluctuations may impact investment value.
  

• Regulatory Compliance: Ensuring all KYC and application details are accurate to avoid rejections.

Here are the common hurdles that HNI investors often encounter while applying for IPOs:

• Application Rejections: Incomplete or incorrect KYC details, mismatched information in the application form, or errors in category selection may lead to rejections.

• Blocked Funds: The ASBA mechanism blocks the application amount in your account, which can impact liquidity until allotment results are announced.

• Subscription Window Timing: Missing the IPO subscription deadline due to timing mismanagement or delays in mandate approval can affect your participation.

• Proportional Allotment Confusion: Understanding how shares are allotted during oversubscription—especially in the HNI category—can be challenging for new applicants.

Applying for an IPO as a High Net-worth Individual involves specific eligibility criteria, a clearly defined application process, and understanding the allotment mechanisms. While the HNI category provides opportunities to invest larger sums and diversify portfolios, it also demands rigorous compliance with regulatory requirements and careful financial planning. By grasping the nuances of the HNI IPO application process, investors can effectively participate in capital market offerings aligned with their investment strategies.

This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

1. Bajaj Finserv Markets – Apply for IPO Under HNI Category
   

2. Securities and Exchange Board of India (SEBI)
   

3. National Stock Exchange (NSE)
   

4. Bombay Stock Exchange (BSE)
   

5. Investopedia – High Net Worth Individual (HNI)
   

6. Zerodha Varsity – IPO Process and Categories