A Brief Note on Types of IPO Investors

At least three mainboard initial public offerings (IPOs) as well as four from small and medium enterprises (SMEs) are scheduled to hit the equity markets next week in order to raise a total fund of more than Rs 1,600 crore. 

Generally, what are the types of investors who subscribe to an IPO? As per the markets regulator the Securities and Exchange Board of India (SEBI), there are four major types of investors who can bid for shares at the time of an IPO process, these include:

Qualified institutional investors (QIIs): Commercial banks, public financial institutions, mutual fund houses and foreign portfolio investors (FPIs) registered with the SEBI are included in this category. 

As per the SEBI mandate, QIIs cannot be allocated more than 50% of shares by companies. 

Anchor investors: QIIs who can make a minimum investment of Rs 10 crore or more are in the category of anchor investors. At least 50% of shares meant for QIIs could be suitably sold to anchor investors.

Retail investors: These are IPO investors whose application value is less than Rs 2 lakh. As per the SEBI mandate, a minimum allocation of 35% of the total issued share is under the retail quota. 

And in a scenario where there is oversubscription, all retail investors are required to be allotted at least one lot of shares. However, if one lot per share is also not possible then a lottery system is initiated in such a case. 

High net-worth investors (HNIs) or non-institutional investors (NIIs): These are investors who look forward to investing more than Rs 2 lakh. 

About 15% of the offer is reserved for NIIs by companies. Unlike QIIs, NIIs don’t have to register with the markets regulator, SEBI. 

Typically, NIIs include resident Indian nationals, eligible non-resident Indians (NRIs), Hindu undivided families (HUFs), companies, societies and trusts.