HNI IPO Application and Allotment Process

Want to apply in an IPO under HNI category? Here is a complete guide on how HNIs can bid for any public issue, types of HNI investors or HNI IPO applicants, and minimum IPO reservation for HNI investors. Also, check the HNI IPO Allotment process and rules to have a clear idea about how shares are allotted to them.

IPO or initial public offering is the best way to raise capital by issuing company’s shares to the public. It not just helps companies to fund its growth and expansion projects but also offers a great opportunity to investors to earn good returns. This is a reason why primary market has seen rising number of IPOs coming every year.

IPOs by good companies tends to get oversubscribed many times across categories. As a result, not everyone who have applied in an IPO receives allotment of shares. HNI investors are those who bid for minimum Rs 2 lakh in an IPO. Many HNIs makes a huge IPO bid to maximize the chance of IPO allotment.

Before we check how HNI can subscribe to an IPO. Let’s first understand who HNI investors are.

Who are HNIs or NIIs?

A public issue can have mainly 3 types of IPO investors; retail investors (RII), Non-Institutional investors (NIIs), and Qualified Institutional investors/bidders (QIBs).

HNI or High Net-Worth Individuals, as the name suggests, are those bidders who invest more than Rs 2 lakh in an IPO. Thus, the minimum bidding amount for HNI is Rs 2 lakh. Any individual who wants to makes an IPO bid for above Rs 2 lakh, he/she must bid under NII category.

All HNIs, Indian residents, NRIs, HUFs, FPIs, Trusts, corporate bodies and companies who makes an IPO application of Rs 2 lakh or above fall in NII category.

Non-institutional investors (NIIs) need not to be registered with SEBI.

Types of HNI investors in an IPO

In 2022, SEBI has announced new rules for NIIs and created two sub-categories for NIIs as small NIIs and Big NIIs. The new guideline were brought in to prevent mid-size investors by creating a separate category for them as small HNI.

1. Small NIIs: Any investor who submit an IPO application worth bidding amount of Rs 2 lakh – 10 Lakh is considered as small NII.
2. Big NIIs: IPO bidders who invests large sum of money as they bid for above Rs 10 lakh in HNI category, are referred to big NIIs.

HNI IPO Category Reservation Quota

As per the market regulatory authority SEBI, every IPO must have minimum 15% shares reserved for NIIs.

The category-wise reservation into small and big HNIs are as follows;

• Small HNIs: one-third of total shares reserved for NII category is available for small HNIs. Means, 5% of total IPO issue size is available for allotment to small HNIs with application size between Rs 2 lakh – Rs 10 lakh.
• Big HNIs: Two-third of total NII reservation is kept for big HNIs with bidding amounts over Rs 10 lakh. Means every public issue set aside 10% its total shares offered to public for allotment to big NIIs.

How to apply for an IPO in HNI category?

Now, the question is how an HNI investor can bid for an IPO. Likewise, retail investors who make an IPO application of upto Rs 2 lakh using UPI, HNIs can also place an IPO bid through UPI as the mechanism allows transactions upto Rs 5 lakh. An HNI can apply in an IPO for a bidding amount upto Rs 5 lakh through stock broker’s trading platform.

Despite SEBI has increased the UPI limit to Rs 5 lakh, in practice, most of HNI investors still prefer applying through ASBA method. To apply for an IPO under the NII category, the applicant has to fill out an ASBA form. Here, HNI investor can either invest in an IPO online through net banking account or submit a physical application form.

The blocked IPO bid amount will only be debited when shares are allotted.

Steps to apply in an IPO under HNI/NII category through ASBA;

1. Access your net banking portal and log in to your account.
2. Go to IPO tab and the page will display all the open IPOs.
3. Click on IPO apply option respective to the IPO of your choice.
4. Select HNI category and enter lot size and price. As HNIs cannot bid at cut-off price, a block mandate will be created at the highest bid price.
5. Submit ASBA IPO application form which will block the IPO bidding amount in your bank account.
6. On successful allotment of shares, your bank account will be debited for the blocked money.
7. If you got partial allotment (Shares allotted are less than shares applied), your bank account will gets debited for the allotted shares.

HNI IPO Apply Rules and restrictions

• An HNI cannot invest less than Rs 2 lakh in an IPO.
• Unlike retail investors, HNIs cannot bid at cut-off price. They can submit IPO applications between the price band at any price.
• Non-institutional investors or NIIs cannot withdraw, cancel, or revise their bids.
• No lock-in for HNI bidders means they can sell shares on the IPO listing day.
• Not less than 15% of the total offer size is reserved for NIIs.
• An HNI cannot apply in both the RII and NII categories.
• The cut-off time for IPO bidding under NII category is 4 PM on the IPO issue closing date.

HNI IPO Allotment Rules and Regulations

Most HNI investors often get funding from financial institutions to bid for higher number of lots to increase the possibility of allotment. As a result, HNI category often gets heavily oversubscribed but as the category has 15% quota reserved not all HNI bidders will be allocated with shares.

Let’s discuss SEBI rules and regulations for allocation of shares to HNI investors. HNI IPO allotment is based on both the proportionate basis and lottery basis based on the number of IPO applications and category oversubscription times.

The formula for IPO allotment to HNI applicants is;

(Number of lots applied/NII category over-subscription)*Shares in 1 lot

For instance, if a public issue receives 100 times subscription in the NII category, and suppose an NII investor has applied for 1000 shares, then HNI bidder will surely be allotted with 10 shares.

However, other HNI applicants who have bid for less number of shares than category oversubscription by NIIs, lottery system will be followed for allocation of shares.

Most HNI investors take IPO funding at 8% to subscribe to an IPO.

HNI IPO Allotment Rules

• In an oversubscribed IPO, an HNIs will be allotted with a minimum number of lots applied.
• Allotment to HNI investors is based on a proportionate basis and lottery system.
• Only those IPO bids under NIIs that are made at or above the offer price are considered for allotment.
• NIIs who have applied for more lots than the issue oversubscription, shares will be allotted proportionately.
• Applied for less number of lots than the category oversubscription, % wise allocation is done through draw of lots.
• Likewise retail category, HNI bid amount gets blocked in the bank account until allotment. A debit will only take place for successful allotment.
• HNIs continue getting interest on the blocked bidding amount in their bank account.

HNI IPO Allotment Process Example

Let’s understand how shares are allotted to HNIs when the issue gets oversubscribed.

Suppose a public issue receives 200x subscription from NIIs and all IPO applications made by NIIs are for 200 lots. Here, as every applicant has bid for issues oversubscription times hence, every HNI will be allotted with 1 lot.

For instance, if the NII category receives application for more than 200 lots, every NII bidder will be allotted with one lot and additional lots will be allotted in proportionate to share applied. Like, an investor who has applied for 300 lots, 1.5 lots will be allocated.

On the other side, applicant who has applied for less than 100 lots, lottery mechanism will be put in place. Shares will be allocated to NII bidders through draw of lots wherein minimum lots will be allotted to selected bidders subject to the minimum bidding amount of above Rs 2 lakh. Thus, allotment to all shares is not guaranteed.

At first, all IPO applications received from NIIs will be segregated based on the number of lots an applicant has applied for. Thereafter, allotment is done percentage-wise in comparison to the total subscription. If 20 HNIs bid for 40 lots, 2 HNI investors will get allotment for 1 lot, 50 NIIs applied for 150 lots, 3 bids will be selected through lottery and 1 lot will be allotted.

HNI IPO Benefits

• Opportunity to buy IPO stocks for more than Rs 2 lakh
• Better chances to get IPO allotment
• HNIs shares have no lock-in and they can sell shares on the IPO listing day.
• Does not require SEBI registration
• Likewise residents, NRIs can also makes an IPO bid as an NII.
• HNIs continue getting interest on the blocked funds.