If you’re wondering, “what is an IPO?”, it is an Initial Public Offering (IPO) that allows companies to raise funds from the public capital market. On the other hand, it allows investors to become shareholders in the company’s equities and earn returns from its growth.
When an IPO is issued, a minimum of 15% of the IPO allotment is required to be reserved for Non-Institutional Investors (NIIs). High Net-worth Individuals (HNIs) are a part of the Non-Institutional Investors bracket, but there are a few notable terms.
Read on to know more about different types of investors in IPOs and the steps to apply for an IPO under the HNI category.
There are three types of investors in the IPO, and these include the following:
A non-resident Indian (NRI), Hindu Undivided Family (HUF), or a resident Indian individual can apply as RII with an amount of up to ₹2 Lakhs.
35% of the total offering under IPO is reserved for this category of investors.
These investors can bid for an IPO at the cutoff price.
All investors, including NRIs, Indian residents, corporations, HUFs, and trusts, invest more than ₹2 Lakhs fall in this category.
High Net-worth Individuals also come under this category. A total of 15% of shares in the IPO are reserved for NIIs.
Investors under this category cannot bid at the cutoff price or withdraw their bid until allotment.
This category includes public financial institutions, mutual funds, and foreign portfolio investors (FPIs).
A minimum of 50% of IPO are reserved for investors falling under this category.
These investors cannot bid at the cutoff price, but withdrawing their bids is not permissible even after allotment.
High Net-worth Individuals are part of the Non-Institutional Investors (NIIs) category. Any investor allowed to park over ₹2 Lakhs in an IPO is considered a High Net-worth Individual.
However, they also need to have total investable assets in possession worth over ₹2 Crores to be classified under the HNI category. Since the total investable amount under the HNI category is over ₹2 Lakhs, you may likely make high returns even in a short period.
Applying under the HNI category guarantees the minimum lot even in an over-subscribed IPO. However, in case of a huge over-subscription, allotment to HNIs is made through a lottery.
Here are a few simple steps that allow you to apply for IPO under the HNI category:
Step 1: Visit the online portal of your Demat account and log in using your credentials
Step 2: Navigate to the ‘IPO’ tab and select the ‘IPO Application’ option
Step 3: Select the ‘HNI’ category once you reach the IPO system's online version
Step 4: Enter the number of lots you want to bid on and the price you are willing to pay for them
Step 5: Wait for the block mandate to get created at the highest bid price as High Net-worth Individuals cannot make a bid at the cutoff price
Step 6: Wait for the amount to get debited to your account when allotment is finalised
However, in the case of over-subscription, only a partial allotment will be made and the amount will be debited accordingly.
For High Net-worth Individuals, IPOs offer a high potential to earn higher returns on their investments. The key to making higher returns lies in conclusions drawn based on thorough research of the company’s financials.
Buying the right IPO at the right time also matters when it comes to short-term returns. Moreover, you can purchase IPOs online, which means there is no hassle involved when investing.
IPOs are also highly liquid as you can exit from your investment anytime through the secondary capital market. For other such investment instruments, visit Bajaj Markets and start investing right away.
No, you cannot apply for an IPO under both HNI and RII categories. Applying under both categories may lead to the rejection of your application.
To be classified as a High Net-worth Individual, you need to have at least ₹2 Crores as investable assets, and you must invest over ₹2 Lakh in the IPO.
If you have applied for an IPO under the HNI category, you will surely get a part of the allocation. However, in case of over-subscription, you may only get partial offerings.
No. For High Net-worth Individuals, bidding at a cutoff price is not permissible. They can subscribe to IPOs only at the highest bidding price.