Investing in an IPO, or Initial Public Offering, can be a lucrative way to get in on the ground floor of a company’s journey to the stock market. For High Net-Worth Individuals (HNIs), applying for an IPO involves specific requirements and considerations, setting them apart from other categories of investors. This guide explores everything you need to know about how to apply for an IPO under the HNI category, with steps and tips for optimising your chances in this high-stakes arena.
Understanding IPOs and HNI Investments
An IPO is a process where a private company offers its shares to the public for the first time, becoming publicly traded. The funds raised can fuel growth, fund operations, and even offer an exit opportunity for early investors. The IPO price is typically set by investment banks based on the company’s valuation and market demand, enabling the company to tap into the capital markets.
The Securities and Exchange Board of India (SEBI) has segmented IPO investors into categories, each with reserved quotas. Among these, High Net-Worth Individuals (HNIs) hold a special position with reserved shares and distinct investment requirements.
Who Qualifies as an HNI?
In India, an HNI is defined as a non-institutional investor who invests a minimum of ₹2,00,000 in an IPO. As per SEBI guidelines, 15% of the shares in an IPO are reserved for this category. The HNI category includes individuals, Hindu Undivided Families (HUFs), non-resident Indians (NRIs), foreign portfolio investors (FPIs), trusts, and companies. This distinct status allows HNIs to apply with larger bid sizes, offering potential rewards if the stock performs well post-IPO listing.
Steps to Apply for an IPO Under the HNI Category With Angel One
1. Log into your Angel One account: Access your Angel One account using either the web portal or mobile app.
2. Go to the IPO section: Once logged in, navigate to the IPO section where you can view ongoing IPOs.
3. Choose your IPO: Select the IPO you wish to apply for from the list available.
4. Select HNI investor type: Ensure that you choose the HNI (High Net-Worth Individual) category before proceeding.
5. Enter number of lots and bid price: Specify the number of lots you want to bid for and enter your bid price.
6. Make your payment
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- If the bid amount is up to ₹5,00,000, you can complete the payment using your registered UPI ID.
- For amounts exceeding ₹5,00,000, you’ll need to apply through ASBA (Application Supported by Blocked Amount), which requires a net banking setup with your bank.
7. Confirm and submit your application
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- Click on “Apply for IPO” to review your application.
- Note that HNI applications cannot be cancelled or reduced after submission.
8. Finalise your bid: Click “Confirm” to place your bid.
9. Wait for allotment confirmation: After the IPO allotment process, you’ll receive confirmation regarding your share allocation.
Key Considerations for HNI IPO Applications
- Minimum investment requirement
As mentioned, an HNI must invest a minimum of ₹2,00,000. This requirement distinguishes HNIs from Retail Individual Investors (RIIs), who have a lower minimum investment threshold.
- No discounts on IPO prices
Unlike some other categories, HNIs aren’t eligible for any discount on the issue price. HNIs pay the full IPO price, reflecting their ability to commit larger sums.
- Oversubscription and allocation methodology
In cases of oversubscription, the allotment is done proportionately. If the HNI portion is oversubscribed significantly, the shares are allotted on a lottery basis, with each eligible applicant guaranteed at least one lot if the bid size covers the oversubscription.
Benefits and Risks of Applying as an HNI
Investing as an HNI can yield substantial benefits but also comes with certain risks. Here are some key factors to consider.
Benefits
- Priority allocation
With a dedicated quota of 15% for non-institutional investors, HNIs have a better chance at securing allocations than retail investors, especially in cases of limited availability.
- Profit potential
If the IPO stock appreciates post-listing, HNIs have the potential to secure substantial returns on their investment, thanks to their larger capital outlay.
Risks
- No guarantees in oversubscription
While HNIs have priority, they still face competition in heavily oversubscribed IPOs. In such cases, only partial allotments may occur, or, in rare cases, no shares are allotted.
- Blocked capital
Funds equivalent to the bid amount remain blocked until the allotment, which can limit liquidity for other investments during the IPO processing period.
Different Investor Profiles in IPOs
1. Retail Individual Investors (RIIs)
Retail Individual Investors (RIIs) are individual investors who invest up to ₹2,00,000 in an IPO. This category is designed to encourage broad public participation, providing retail investors an accessible way to invest in public offerings. RIIs benefit from a 35% reservation of IPO shares, allowing them a significant portion of shares relative to their investment size. A notable advantage for RIIs is the ability to place bids at the “cut-off” price, where they commit to buying shares at the final issue price set after book-building.
2. Qualified Institutional Buyers (QIBs)
Qualified Institutional Buyers (QIBs) represent large financial institutions like mutual funds, commercial banks, foreign portfolio investors (FPIs), and public financial institutions. These institutional investors play a pivotal role in the IPO market due to their financial strength and ability to invest in significant quantities. The Securities and Exchange Board of India (SEBI) mandates that at least 50% of the total IPO shares be reserved for QIBs, reflecting their importance in stabilising demand and bringing credibility to the IPO. QIBs must be SEBI-registered, as this category involves substantial investment and higher regulatory oversight.
3. Non-Institutional Investors (NIIs)
The Non-Institutional Investors (NII) category caters to high-net-worth individuals (HNIs) and other high-value investors such as NRIs, trusts, Hindu Undivided Families (HUFs), and certain companies. This category captures larger investments from individuals and entities that do not qualify as institutional investors but still bring significant capital to the table. NIIs have a 15% reservation in IPOs, offering them a dedicated space in high-demand offerings. To qualify as an NII, an investor typically must bid for shares worth over ₹2,00,000.
Important Tips for Applying as an HNI
1. Analyse the IPO thoroughly
Understand the company’s financial health, industry position, and market prospects before applying. Large capital outlays make thorough research essential.
2. Consider market sentiments
The performance of recent IPOs can provide clues about market conditions. In bullish markets, high subscription rates indicate strong investor interest, while bearish markets may see tepid responses.
3. Check Bank ASBA facility
Ensure your bank provides ASBA services for IPO applications. Only banks with this feature can block the necessary funds for an IPO application.
4. Prepare for possible oversubscription
Keep in mind that in oversubscribed IPOs, you may not receive a full allocation. A well-funded bank account ensures you’re ready for the eventuality of partial allotments.
Conclusion
Applying for an IPO as an HNI provides unique investment opportunities, but it also requires an understanding of the application process, investment requirements, and potential outcomes. Knowing how to apply for HNI IPO applications with adequate funds, market knowledge, and strategic foresight can make a difference in securing allotments. With the minimum investment requirement, HNIs access a separate quota, providing a higher probability of allocation in some IPOs.
FAQs
Can I apply in both retail and HNI categories?
No, individuals cannot apply under both categories for the same IPO. Doing so may lead to application rejection.
Does investing more than ₹2,00,000 automatically make me an HNI applicant?
Yes, any IPO application exceeding ₹2,00,000 falls under the HNI category, even if it’s an individual investor.
Is an HNI guaranteed shares if there’s no oversubscription?
Yes, in the absence of oversubscription, all valid HNI bids receive shares. In cases of oversubscription, allotment is proportionate or lottery-based.
What is the "cut-off" price in an IPO?
The cut-off price is an option available only to retail investors, allowing them to bid without specifying a price. The shares are allocated at the final issue price.
