IPOs have always drawn interest of investors as they provide a very good opportunity for investments in quality companies which are looking to raise funds. IPOs of good stable companies offer a win-win situation for both the company as well as the investors.
Whenever an IPO is rolled out, you must have heard that the IPOs have various categories in which investors can invest in it. The IPO subscription is also opened in different slots for different categories of investors. All categories have a reserved quota or percentage of shares – out of the total number of shares that the company wishes to list.
For companies, larger institutions or institutional investors are preferred buyers of shares, as compared to retail investors. Hence, slots are open on different dates and at different times for these preferred stockholders. The allotment of shares depends on the category, in which one has applied. Let’s understand all the categories there are through which investors, institutions and others invest their money in a company through its IPO.
1) Retail Individual Investors (RII): This is the most common category for applying for an IPO. It includes Resident Indian Individuals along with NRIs and HUF. The investment amount under this category is capped at 2 lakhs. This category allows bidding at the cut-off price and minimum 35% of the offer is reserved for RII category.
2) Non-institutional bidders (NII): All individuals from the Retail Category who wish to apply for an amount greater than 2 lacs can apply under the NII category. Minimum 15% of the offer is reserved for this category. Not less than 15% of the offer is reserved for Non-institutional bidders. They enjoy the privilege to withdraw their bids until the day of allotment. However, they are not eligible to bid at cut-off price.
3) Qualified Institutional Bidders (QIB): All the public financial institutions, commercial banks, Foreign portfolio investors, mutual funds etc. apply under this category. All such entities necessarily need to be registered with SEBI before applying. QIBs have a reserved quota of 50% of the offer. They are not able to bid at cut off price and can neither withdraw their bids after the closing of the IPO.
4) Anchor Investor: The investors who are a Qualified Institutional Buyer and are making an application for investing 10 crores or more through the book building process fall under this category. Up to 60% of the QIB category can be allocated to Anchor Investors. The issue price for Anchor Investors is decided separately. The minimum application size for Anchor Investors is 10 Crores and merchant bankers, promoters and direct relatives of them can’t apply under this category. They are not eligible to bid at the cut off price.
5) Foreign Institutional Investors (FII): All the foreign investors who belong to any other country and wish to invest in IPO fall under this category. This type of investors generally invest in companies from developing economies like India where the growth rate is very high.
These are some of the most common categories which are usually associated with every IPO. Rolling out an IPO is a very tedious process. It is very important for applying in the relevant category to increase your chances for allocation.
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Data presented here is taken from company's inception
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