In the State of the Economy report for August, the Reserve Bank of India mentioned that 2021 could be the year of IPOs for India, making it one of the most popular investment methods for every category of investors.
Typically, investors can subscribe to IPO shares under three categories. They are:
- Retail Individual Investors (RII)
- High Net Worth Individuals (HNI)
- Qualified Institutional Buyers (QIB)
In this article, we will concentrate on how one can apply for an IPO under the HNI category:
Who can bid under the HNI category
Investors who have investable assets of over ₹2 crores can bid under this category.
How to apply under the HNI category
You need to follow these steps when applying for IPO shares under the HNI category.
- Log into the net banking website and click on the IPO segment.
- Click on the details regarding the various IPOs provided.
- Click on the IPO application form to begin filling in the details.
- Select the HNI category and enter the requisite details such as lot size, bid amount, and account number in the HNI category.
- Ensure that the total amount you wish to invest is more than ₹2 lakh.
- Submit the application
Upon successfully submitting the IPO form application, your application money will stay blocked until the allotment is finalised. The application money will be debited only after the shares are allotted.
How are the shares allotted to an HNI investor
Assume that you have applied for 400 shares of a company. Now there are two cases in which the allotment is carried out:
IPO was undersubscribed
In this scenario, you will get the number of shares you have subscribed for, which would be 400.
IPO was oversubscribed
Say the shares were oversubscribed 200 times. In this case, you will be allotted based on the formula number of shares applied by the number of times it was oversubscribed i.e. 400/200, which is two shares.
As an HNI investor, here are a few things you need to remember:
- You cannot apply for the IPO in both RII and HNI categories
- You will not be eligible for any discounts that the company may offer
- You cannot bid at the cut-off price
- You can not cancel your bids until the allotment day
- In case of oversubscription, you will receive a proportionate allotment or be allotted shares based on the lottery
- If the proportionate shares are not equal to at least one lot, it's unlikely you will receive an allocation
- Until the IPO shares are allotted to you, there will be no debit from your savings bank account
- Since you cannot choose the cut-off price, a block mandate is created at the highest bid price
Conclusion
When deciding between the retail or the HNI category route to invest in an IPO, consider the market demand and the amount you can set aside for the IPO investment. Typically, HNIs are advised to wait until the last minute to subscribe to IPO shares to better understand the subscription and profits.
Irrespective of the category you choose, it is crucial to conduct due diligence, in-depth research, and analysis when applying for an IPO.