IPOs are one of the most popular and exciting investment opportunities for retail investors nowadays. If you’re wondering what an IPO is and why it is launched, the explanation is quite simple. An IPO, or Initial Public Offering, is a company’s way to raise money from the public (retail investors). This allows companies to have liquidity when their stocks and shares are available to the public.
When an IPO is launched, retail investors, High Net Worth Individuals (HNIs), and Qualified Institutional Buyers (QIBs) have to wait and subscribe. Based on the demand and supply of available stocks, the investors can receive their desired allocation or a lower proportionate allocation if the IPO is oversubscribed.
So, how do investors apply for an IPO under the HNI category? What are the HNI category eligibility criteria? And what are the benefits of HNI in IPO? In this piece, let’s understand the various requirements and tips for a successful IPO application.
HNIs fall under the Non-Institutional Investors (NII) category in IPO investments. The NII category also accepts investments from trusts, companies, and HUFs (Hindu Undivided Families). This category has up to 15% reservation for all IPO allotments. If investors want to apply for an IPO under the HNI category, their allotments will be made from the 15% reservation of the NII category. The reservation of the NII category is mandated by SEBI (Securities and Exchange Board of India) guidelines. Now that you know about the HNI category, let’s review its eligibility criteria.
Before you learn about the eligibility criteria for the HNI category IPO, it is crucial to mention there are no net worth checks performed during the IPO application process. For an IPO application process, whether you are an HNI or not is solely determined by your minimum investment amount. There are also certain SEBI regulations to which HNI investors are subjected. Let’s expand on this further by examining the eligibility criteria for IPO applications under the HNI or NII category.
1. Minimum Investment: This is the only eligibility criterion for any IPO application under the HNI category. Investors are required to invest a minimum amount of ₹2,00,000 to be eligible for the reservation allocation of the NII/HNI category. Based on the price range, investors in the HNI category have to make a bid of enough units that the value of the investment is over ₹2,00,000. Investors in the HNI category can place up to three bids in an IPO, just like retail investors. However, each bid has to have a minimum value of ₹2,00,000 or more
With the eligibility criteria clear, let’s review some of the regulations that apply to IPO investors in the HNI category
- Investors in the HNI category cannot place bids at the cutoff price.
- Investors in the HNI category cannot cancel or withdraw their bids once placed.
- Investors in the HNI category cannot opt to modify their placed bids downward; only upward modification is allowed. This means if you have placed a bid for 250 units/lots of an - IPO at ₹3,00,000, you cannot modify your bid to 230 units/lots; you can only modify it upwards to 270 units/lots (this is just an example).
- Investors in the HNI category cannot again subscribe to the same IPO as a retail investor.
- Lastly, in case of oversubscription of the IPO, investors in the HNI category only receive a portion of their applied allotments.
Online brokerage platforms offer the most convenient and simplified IPO application process. Top brokerage platforms like Sharekhan allow investors to apply for an IPO under the HNI category in just a few clicks. Here is a detailed step-wise guide to help with your HNI application for IPO on Sharekhan.
Step 1: Log in to the Sharekhan app or website using your credentials and complete the two-factor authentication process.
Step 2: Navigate to the IPO section on the website or mobile application found under the equities menu.
Step 3: Select the IPO you wish to apply from the available current IPOs.
Step 4: Change the application category to HNI in IPO application page, and the system will automatically change the minimum order quantity and value as per the lot size.
Step 5: Once you are satisfied with the unit quantity of the selected IPO, enter your UPI ID in the prescribed field, accept the terms and conditions check box, and press the submit button.
Step 6: Once submitted, investors will have an opportunity to confirm the details of their order. If you are satisfied with the order information, click the confirm order button.
Step 7: The last step is to accept the UPI mandate sent on your entered UPI ID to confirm your order.
Step 8: Once your application is confirmed, click on the order book option on the Sharekhan platform to check your IPO application status.
There are three different categories of investors who can subscribe to an IPO. Each category has a list of investors clubbed together and represented as a category. Let’s understand the three broad categories and the types of investors that make up these categories.
Retail Individual Investors (RII) include individual Indian resident investors, NRIs, and HUFs. This category has a 35% reservation of the total IPO offer. Any individual investor is free to invest as a retail investor, provided their investment amounts are below the cap of ₹2,00,000. Some of the benefits enjoyed by this category of investors include being able to invest at the cut-off price and withdrawing or modifying their bids even after placing them. In the case of IPO oversubscription, this category of investors receives a minimum of allotments.
Non-institutional investors (NII) include individual investors, NRIs, HUFs, trusts, companies, and HNIs. This category has been discussed in detail in previous sections. Any investor, individual or not, who invests over ₹2,00,000 in an IPO is considered a member of this category.
Qualified Institutional Buyers (QIB) include mutual fund houses, foreign portfolio investors, and public financial institutions. These investors are registered with SEBI and have a 50% reservation of any IPO allotment. This category of investors, much like the NII category, is not allowed to bid at the cut-off price. They are also not allowed to withdraw their bids once placed.
Here are some tips to ensure your HNI IPO application goes through smoothly.
1. After confirming your order, you complete the UPI mandate as soon as possible. Even if you fail, make sure the mandate is accepted before 5:00 PM on the issue closing date.
2. You can also pre-apply one day before the issue opening for mainboard IPOs. The application process is the same, and it ensures your IPO application is submitted to the exchange in a timely manner.
That’s it; following these tips can help you ensure your HNI IPO application process goes smoothly.
HNI IPO applications come at a significant cost to investors. Individual investors opting to invest in IPOs as HNIs should always remember that IPOs are not guaranteed to perform well. Investors should be aware of the risks and have appropriate fail-safe measures to ensure their financial well-being is not questioned if an IPO doesn’t perform as expected post-listing.
The application process for an IPO under the HNI category is similar to that of other retail investors. Now that you know all about the process of HNI application for IPO listings, make sure you remember two things. Perform due diligence about the company you’re going to be investing in and use the Sharekhan platform to complete your IPO applications easily. Happy investing!
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