4 Different Types of Investors in an IPO: Meaning and Difference

Published on Friday, September 22, 2023 by InvestorGain| Modified on Wednesday, December 13, 2023

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Want to apply for an IPO, must know that there are 4 types of IPO applicants or investors while bidding for an IPO. Check out which category belongs to you or in which category, you should apply for.

In the last few years, the primary market has witnessed an increasing number of IPOs coming every year to get listed on the stock exchange. Not just the frequency of IPO launches but also investors’ interest in IPO has increased. IPO is considered a lucrative investment opportunity because a company issues its shares for the first time to the public and that too at attractive prices.

For an IPO investor, there are 4 major categories to participate in an IPO. The list includes Retail Individual Investors (RII), Non-institutional investors (NII), Qualified Institutional Bidders (QIB), and Anchor investors. Check out the meaning, difference, and the minimum and maximum bidding amount for each type of IPO applicant.

4 Types of Investors or IPO Applicants

Anyone who want to subscribe to an IPO can apply for an IPO as RII, or QIB, or NII, or Anchor investor. Every IPO issue has a category reservation for each type of investor.

Let’s dive in deeper to understand different types of investors in an IPO.

1. Retail Individual Investor (RII)

Most of us from the general public are retail investors. Technically speaking, an individual who places an IPO bid for a maximum of upto Rs 2 lakh belong to this category.

Whether you are a resident of India or a non-resident (NRI), who wants to invest less than or upto Rs 2 lakh in the IPO, should apply as a retail individual investor (RII).

The maximum bidding amount for retail investors is capped at Rs 2 lakh.
IPO applicants in only the retail category are allowed to bid at the cut-off price.
They can withdraw or cancel their bid before the issue closes for subscription.
For a book-building IPO, the issue must have minimum 35% retail reservation.

Retail Investors Minimum Reservation

In most book-building IPOs processes, the minimum retail quota is 35%. The issuer companies must have profits in the last 3 years.
In book-building IPO via QIB route, the issue must have atleast 10% shares reserved for retail investors.
In the case of fixed price IPO, the issue must contain 50% retail quota.

2. Non-Institutional Investors (NIIs) / High Net-worth Individuals (HNIs)

All individuals (Resident or NRI), trusts, companies, institutions, or HUFs who subscribe to an IPO for more than Rs 2 lakh should apply as Non-institutional investors (NII).

NIIs are further divided into small HNI and Big HNI

Small NII (sNII): All IPO bidders who apply for an IPO from Rs 2 lakh to Rs 10 lakh is called sNII. Thus, SNII can put a maximum IPO bid of Rs 10 lakh.
Big NII (bNII): Unlike it, high-net-worth individuals whose subscription amount is above Rs 10 lakh are known as big NII. Thus, 10 lakh is the minimum bidding amount for big HNIs.

The minimum investment amount for HNIs / NIIs is above Rs 200,000.
Maximum bidding amount by NIIs is restricted to Rs 10,00,000.
IPO applicant in the NII category cannot bid at the cut-off price.
There is no lock-in period for NIIs.
Most of the IPOs have a 15% quota reserved for NIIs.
The only difference between NII and QIB is that NIIs are not SEBI registered.
NIIs have the right to withdraw or cancel the IPO bid before IPO allotment.

NII Minimum Reservation

Check out rules pertaining to the minimum shareholder quota for NIIs in any IPO.

Generally, all mainboard IPOs under the book-building method have a minimum 15% of the total issue size reserved for NIIs. In this, 5% is reserved for small NIIs and 10% is for big HNIs.
Book-building IPO issues under QIB route have a maximum or not more than 15% NII reservation.
Fixed-price IPO issuing companies can allocate 50% of the total offering between NIIs and QIBs.

3. Qualified Institutional Investors (QIIs) / Qualified Institutional Bidders (QIBs)

Financial Institutions, Commercial Banks, Mutual Fund Houses, Foreign Portfolio Investors, or any other SEBI-registered institutions are called Qualified Institutional Investors. Such types of investors can bid for an IPO under the QIB category.

QIB bid for an IPO with a large amount and in IPO process, underwriters try to get the maximum subscription number from QIIs.

Only SEBI-registered institutions can apply under the QIB category.
Not more than 50% of the IPO offer can be allocated to QIBs.
IPO applicants in the QIB category cannot withdraw their bids, once applied.
Likewise NIIs, QIBs cannot bid at the cut-off price.
There is no lock-in for QIB investors.

QIB minimum Reservation

Book-building IPOs via the profitability route have a maximum 50% quota reserved for QIBs.
IPOs via QIB route have a minimum 75% of shares reserved for QIBs.
In fixed-price issues, 50% of the total shares offered are distributed between QIBs and NIIs.

4. Anchor Investors

It is not a separate category IPO applicant as it is a subset of QIB. IPO bidders in the QIB category who bid for a large amount of above Rs 10 crore are called anchor investors. Thus, anchor investor is not a separate category of IPO applicant as they also apply as QIIs.

An IPO issuer company can allocate 60% of the QIB reservation to anchor investors. Company promoters, direct related parties to the company, and merchant bankers cannot participate in the IPO as anchor investors.

An IPO opens a day before the actual issue opening day for anchor investors.
Minimum bidding amount for anchor investors is Rs 10 crore.
Shares allotted to anchor investors have 30 days of lock-in period.

Frequently Asked Questions

1. I am an NRI, which category should I apply in?−

Non-resident Indian or NRI can apply for an IPO in retail or NII category.

As an NRI, if you want to bid for upto Rs 2 lakh, you should subscribe to the IPO under retail category. However, if your bidding amount is above Rs 2 lakh, you should bid as non-institutional investor or high net-worth individual.

2. Who are anchor investors in an IPO?+

Anchor investors are qualified institutional investors (QIIs) who bid for an IPO above Rs 10 crore. Maximum 60% of QIB reservation quota can be offered to anchor investors. They can apply for an IPO one day before the IPO opening day.

Anchor investors cannot sell their shares before 30 days as their shares are locked for the period.

3. Can a retail investor sell shares on the listing day?+

Yes, retail investors in an IPO can sell shares on the listing day. They are free to sell allotted shares anytime, once shares got listed on the exchange.

4. How anchor investors are different from QIBs?+

Both apply in QIB category, but to be an anchor investor, applicant has to place bid for more than Rs 10 crore. In an SME IPO, the bidding amount for anchor investor is minimum Rs 1 crore.
QIBs can sell shares anytime after listing but shares offered to anchor investors are locked for 30 days.
Generally, an IPO issue cannot have more than 50% shares reserved for QIBs, however, out of 50% QIB quota, upto 60% can be offered to anchor investors.
Anchor investors bid begins a day before the IPO opens for subscription.
Promoters of the company, family members, direct relatives, and merchant bankers cannot participate in the anchor investors.

5. How HNI can apply in IPO?+

High net-worth individuals (HNIs) or non-institutional investors (NIIs) make a minimum investment of Rs 2 lakhs. Thus, they cannot purchase IPO using the UPI payment gateway because the maximum transaction limit in UPI is Rs 1 lakh.

HNIs can either participate in an IPO through net banking ASBA facility or by physically submitting the IPO application form. ASBA is the most common or preferred method while applying in an IPO under NIIs.

Steps to apply in IPO under NII/HNI category;

Log in to your net banking account.
Go to the IPO investment option.
Select the IPO of your choice, and tap on Apply IPO option.
Select category as NII or HNI, and enter bid amount and biding price. HNI cannot bid at the cut-off price.
Submit the IPO apply order and the IPO application amount will be blocked in your bank account until allotment.
On the allotment, if you are allocated with the shares applied for, the amount will get debited, or in case of partial allotment, your bank account will be debited to the extent of shares allotted.

6. Are chances of allotment increases, if I apply for more than 1 lot?+

No, if an IPO receives good response and gets oversubscribed, then applying for more than 1 lot does not matter because maximum of 1 lot can be allotted to an investors against the shares applied.

Instead of bidding for more than single lot, investor should consider applying 1 lot from different Demat accounts to maximize the chances of allotment.

7. What is the difference between QIB, NII, and RII?+

Retail investors, non-institutional investors (NIIs), and Qualified Institutional bidders (QIB) are the three major categories of investors in an IPO apply process. Here is the difference between QIB, NII, and RII:

	QIB	NII	RII
Meaning	SEBI registered financial institutions, commercial banks, mutual fund asset management companies, etc.	High-net worth individuals, NRIs, HUFs, corporates, trusts, etc. who invests for above Rs 2 lakh in an IPO.	Individuals, NRIs, HUFs, etc. who subscribe to an IPO worth maximum of Rs 2 lakh.
IPO investment amount	No limit	Minimum Investment: Above Rs 2 Lakh Maximum Investment: Upto Rs 10 Lakh	Minimum Investment: 1 IPO Lot Maximum Investment: Upto Rs 2 Lakh
Reservation	Not more than 50%	Not less than 15%	Not less than 35%
Bid withdrawal	Not Allowed	Not Allowed	Retail applicants can cancel their IPO bid before the issue closing day.
Lock-in	No lock-in for QIBs while Anchor investors who invests more than Rs 10 Cr in the QIB category, their investment is locked in for 30 days.	No lock-in on NII investment	No lock-in