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 article 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.

High Net-worth Individuals (HNIs) have a distinct category in IPOs that allows participation with higher investment limits, subject to specific eligibility and documentation requirements. This ensures that all applications under the HNI segment meet SEBI’s prescribed norms and are processed transparently.

Key Eligibility Requirements:

• Minimum Investment Amount: The total bid value must exceed ₹2 lakh per IPO application. This threshold differentiates HNIs from retail investors, who can apply for up to ₹2 lakh.
  

• KYC Compliance: Applicants must complete the Know Your Customer (KYC) process by submitting valid documents such as PAN, Aadhaar, passport, or voter ID.
  

• Demat Account: A demat account linked to a valid bank account is essential for applying and receiving share allotments electronically.
  

• Category Classification: The investor’s application must be correctly marked under the Non-Institutional Investor (NII)/HNI category when submitting the IPO bid through a broker or financial intermediary.
  

• Multiple Bids: HNIs may submit multiple bids in an IPO, provided they adhere to applicable regulations and funding requirements.

Meeting these criteria ensures eligibility for HNI IPO participation and allows investors to apply within the higher-value allotment range defined under SEBI’s framework.

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.

Familiarity with key IPO terms helps investors 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.

High Net-worth Individuals (HNIs) can participate in IPOs under a dedicated category that allows higher investment applications. While this category offers certain advantages, investors should also be aware of related risks and regulatory requirements.

Benefits

• Higher Application Limit: HNIs can apply for IPOs exceeding ₹2 lakh, allowing them to participate beyond the retail investor limit.
  

• Separate Allocation Category: A portion of shares in public issues is earmarked for non-institutional investors, including HNIs, offering structured participation.
  

• Portfolio Expansion: Participation under the HNI category enables inclusion of newly listed companies in a diversified portfolio.

Considerations

• Higher Capital Requirement: The minimum investment threshold is significantly higher than the retail category, requiring adequate financial planning.
  

• Proportionate Allotment Risk: In oversubscribed issues, allotment under the HNI category occurs proportionally, which may reduce the actual number of shares allotted.
  

• Market Price Variability: Share prices can fluctuate after listing, affecting the value of allotted shares.
  

• Regulatory and Documentation Compliance: Ensuring accurate KYC, demat, and bank details is necessary for successful application and allotment processing.

While the HNI category enables higher-value IPO participation and diversification, prudent evaluation, financial preparedness, and compliance with SEBI regulations remain essential for a smooth investment experience.

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 understanding 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.