Applying for IPO under HNI category: All you need to know

29 Jan 2021  Read 42017 Views

Like Twitter and Facebook, even the Dalal street has something trending happening time and again. And in case you’re wondering what it is, it’s the “IPOs”! 

Though most of us are aware as to what an Initial Public Offering is, we fail to look beyond that. While it is a very huge process containing numerous intricate details, we have brought you a special part of it that will be useful when you subscribe for future IPOs. 

Today, we will be looking at the HNI category of investors in detail in this blog. So, let’s begin!

IPO and its categories

Initial Public Offering refers to the process where various companies come forward and offer their shares to the public for subscription. They do this to raise capital which will be used for expansion or to fulfil other working capital based needs. 

As an investor, you can subscribe to these shares under three different categories. They are as follows:

  1. Retail investors
  2. HNI or High Net Worth Individuals
  3. QIB or Qualified Institutional Buyers

Now let’s see in detail about all three of them and how they differ from each other. 

Retail investors (RII) 

Individuals, HUF and NRI’s opt for this category of investment. Their investment usually is under 2 lakhs. About 35% of any share allotment goes to them. Further, they are eligible to bid for the cut off price. However, the allotment of shares depends upon whether or not the shares are oversubscribed. 

Qualified institutional buyer (QIB) 

This is not a popular mode of investment and is used by financial institutions, commercial banks, foreign portfolio investors and mutual fund investors only. As you can see, this investment type is not for the common public. About 50% of the issue is restricted for QIB investors. They can withdraw their bids even after the close of IPO. 

High Net Individuals (HNI) 

High net worth individuals are allotted about 15% of the entire issue. They can bid nothing less than 2 lakhs and most of them invest in crores. While they are not allowed to bid at the cutoff price, they are also not allowed to withdraw their bids until the day of allotment. In case of oversubscription, allotment is made either proportionately or using a lottery.

As an individual investor, you might be confused as to which route to take up and which will best suit you.

Hence, the table below will help you in understanding the key differences between both -

Particulars 

High Net worth Individuals 

Retail Investors 

Allotment 

In case of over-subscription, the allotment is made either proportionately or by a lottery system. If you have applied for the number of lots equal to or more than the number of times it's been oversubscribed in the NII category (includes HNIs, NRIs, FPIs, etc.), you'll be alloted atleast one lot for sure.

In case of over-subscription, the allotment is made by a lottery system. A person applying for one lot is considered the same as someone applying for multiple lots. It's pure luck.

Maximum investment amount

Must bid for more than 2 lakhs only. 

Can apply up to 2 lakhs.  

Discount if any

On the other hand, the HNI investors won’t be eligible for the various discounts. 

Say the company offered a discount. Then the RII category investors will be eligible to receive that. 

Cutoff price 

However, the HNI investors are not eligible for subscribing under the cutoff price. 

An investor of this category can invest in the cutoff price. 

*Note that an individual cannot subscribe in both HNI and RII categories while applying for an IPO.

Key details of the HNI category

Say Mr X subscribed for the shares of XYZ company. He applied for 300 shares of the company. Now there are two cases in which the allotment can be made. 

1st case:

Here, let’s say the shares are undersubscribed. Then under this scenario, the investor will get whatever he has applied for. That is the 300 shares. 

2nd case: 

Say the shares are oversubscribed by 300 times. Then, in that case, the investor will be allotted proportionately, which in this case is 1 share. 

But then, as many HNI applicants choose for shares worth lakhs of rupees, they get a loan from their respective brokers to finance the same. This is done keeping in mind that an oversubscription will invite proportional division of allotment, and by applying for more than what you want, you will finally land up in the number you are expecting. However, it is important to remember that when you borrow, you will be paying interest on the amount as well. 

                                             

As we know, IPOs are mostly looking forward to their listing gains, and the HNI investors are no different. However, it depends on various factors. As they spend a huge amount and also pay interest and other charges, they need a good number to offset the charges. For instance, though HUDCO saw a good number on premium, the HNI investors saw a huge loss. On the other hand, phenomenal profits were made upon D-mart shares. 

Hence the choice to opt for HNI or RII must be solely made on the nature of shares coming for IPO. That’s why most HNI investors wait until the last day to subscribe to the shares. So that they can obtain a rough idea as to what the subscription will be like, and whether they will fetch a profit or not. 

How to apply as an HNI?

Some of the steps to apply for the shares under the HNI category are as follows. 

  • To apply for shares under the HNI category, you can simply log into your net banking site and click on the IPO column.
  • You will be taken to a page where details regarding the various IPOs are provided. You can take a look at them. 
  • Once you are done viewing the various details, you can click on the IPO application form option to go to the form and start filing. 
  • Now fill in the required details such as the number of lots, price, account number, etc. and select the HNI category without fail. After which you can submit it.  
  • There you go! You have now applied! 

The application money will be released from your account only after allotment. After the allotment of the shares, the money will either be debited partially or fully or will be refunded. When the shares are not fully subscribed, you will be allotted what you asked for, and the entire amount for the same will be deducted. On the other hand, in the case of oversubscription, you will be allotted proportionately, and the application money will be deducted accordingly, or it will be refunded entirely.  

To sum up

So, making a wise choice when it comes to IPO is extremely important. And that way, you will be the one making profits and not your brokers.

About the Author: Varishika Dinesh | 136 Post(s)

Varishika is on the verge of successfully completing B.Com. Nothing excites her more than reading books and watching movies. Business, finance, economy? You have her attention.

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