Types of Investors Eligible to Participate in an IPO

When a company launches an Initial Public Offering (IPO), it offers its shares to the public for the first time to raise capital. This capital can be used to fund operations, expansion, debt repayment, or meet regulatory requirements. However, not all investors participate in IPOs in the same way. The Securities and Exchange Board of India (SEBI) classifies investors into distinct categories, each with specific eligibility criteria, application limits, and reservation quotas.

This guide explains the different types of investors eligible to participate in IPOs in India—ranging from individual investors to large financial institutions. Understanding your category helps streamline your IPO application and aligns your participation with regulatory norms.

The IPO investment landscape in India includes five primary investor categories. Each plays a distinct role in ensuring broad-based participation in the equity markets.

Retail Individual Investors (RIIs)

Retail Individual Investors are non-institutional investors who apply for IPO shares worth up to ₹2 Lakhs.

Who qualifies as an RII

• Resident individuals
  

• Non-Resident Indians (NRIs)
  

• Hindu Undivided Families (HUFs)
  

Key Features:

• Investment limit: ₹2,00,000 per application
  

• Reservation quota: Minimum 35% of the issue size
  

• Pricing flexibility: Can apply at the cut-off price—i.e., the final price decided post book-building
  

• Allotment process: Usually conducted via a lottery system in case of oversubscription
  

RIIs can apply using ASBA (Application Supported by Blocked Amount) through their bank account or via UPI through supported apps linked to their demat account.

Non-Institutional Investors (NIIs) / High Net-Worth Individuals (HNIs)

This category includes individuals and entities that invest over ₹2 Lakhs in an IPO.

Who qualifies as an NII

• Individuals applying for shares above ₹2,00,000
  

• HUFs, companies, societies, and NRIs investing beyond the retail limit
  

Key Features:

• Reservation quota: At least 15% of the issue size
  

• Bid price: Must specify the price (cannot apply at cut-off)
  

• Allotment: Done proportionately based on the amount invested
  

• No withdrawal: Cannot revise bids downwards or withdraw after closure
  

NIIs often aim for strategic gains or larger allocations based on market momentum or business fundamentals.

Qualified Institutional Buyers (QIBs)

These are institutions with experience, regulatory oversight, and large financial reserves.

Who qualifies as a QIB

• Mutual fund houses
  

• Scheduled commercial banks
  

• Public financial institutions
  

• Foreign Portfolio Investors (FPIs)
  

• Insurance companies
  

• Pension and provident funds with corpus over ₹25 Crores
  

Key Features:

• Reservation quota: Up to 50% of the IPO
  

• Application: Cannot bid at cut-off price
  

• Allotment: Proportionate basis
  

• Bid restriction: No withdrawal after bid submission
  

QIB participation in IPOs is often seen as a marker of credibility and may influence investor sentiment.

Anchor Investors

A subset of QIBs, anchor investors are offered shares a day before the IPO opens to the public.

Eligibility and Criteria:

• Only Qualified Institutional Buyers are eligible
  

• Minimum application size: ₹10 Crores
  

Key Features:

• Allocation cap: Up to 60% of the QIB portion
  

• Timing: Allotment happens 1 day prior to public opening
  

• Lock-in: Shares are locked in for 30 days
  

• Purpose: To provide price stability and market validation
  

Anchor investors are selected by the issuer and are disclosed in the Red Herring Prospectus (RHP).

Companies may offer preferential quotas to internal stakeholders.

Eligibility:

• Employees: Permanent employees of the issuing company or its subsidiaries
  

• Shareholders: Existing shareholders of the parent or group company (as on record date)
  

Key Features:

• Reservation: Specific percentage as defined in the prospectus (typically 5–10%)
  

• Pricing: May be offered a discount to the issue price
  

• Lock-in: Shares may be subject to lock-in based on SEBI regulations
  

These categories aim to enhance employee ownership and reward loyal shareholders.

Here's how different investor categories in an IPO compare based on investment limits and reservation:

Additional Information:

• Can Apply at Cut-Off Price: Only Retail Investors can apply at the cut-off price; others cannot. Applying at cut-off for Employees/Shareholders might depend on category.
  
  

• Allotment Type:
  

  • Retail Investors: Lottery/Proportionate
    

  • Non-Institutional Investors & QIBs: Proportionate
    

  • Anchor Investors & Employees/Shareholders: Discretionary
    

• Notes:
  

  • Retail Investors are the most accessible category.
    

  • Non-Institutional Investors are popular among High Net Worth Individuals (HNIs).
    

  • QIBs include regulated institutions only.
    

  • Anchor Investors get shares allotted before the IPO launch.
    

  • Employees/Shareholders allocation varies and is offered only in select IPOs.

All investors must have:

• A trading account with a SEBI-registered broker
  

• A demat account for holding shares electronically
  

• Access to UPI or ASBA-enabled bank accounts

RIIs can apply via mobile trading apps or internet banking. NIIs and QIBs often apply through institutional brokerage channels with detailed bidding strategies.

SEBI’s IPO framework ensures:

• Fairness in allocation
  

• Investor protection
  

• Transparent book-building
  

• Minimum public participation (for listing eligibility)

Each investor category is clearly defined in the SEBI (Issue of Capital and Disclosure Requirements) Regulations.

Understanding your investor category is important because:

• It determines your investment cap
  

• Defines your allocation probability
  

• Helps avoid application rejection due to category mismatch
  

• Enables strategic planning for high-demand IPOs
   

Misclassification (e.g., applying under RII but investing over ₹2 Lakhs) can lead to disqualification or refund.

IPOs serve as a pivotal mechanism for companies to raise capital and for investors to become stakeholders. Knowing the types of investors in IPOs—from RIIs to anchor investors—empowers participants to make informed decisions within their eligibility limits. Whether you're applying for the first time or managing a diversified portfolio, aligning with your investor category ensures a smooth and compliant IPO experience.

This content is for informational 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.