Introduction

IPOs, or Initial Public Offerings, are a way for private companies to raise capital by seeking public investments. By issuing IPOs, a private corporation becomes public; it can be seen as an exit strategy for old investors and founding members of the company. The price of the new stock issues through IPOs is usually set by investment banks that are hired by the company. These investment banks additionally also help determine the market demand for the issued stock.

IPOs are a great way for a company to garner growth and expansion opportunities through the newly issued stock. Whenever the decision-makers of the company deem the credentials fit enough to qualify for SEC regulations and show readiness to shoulder the responsibilities of becoming a public entity, the company may start the process of IPO.

Let's look at how HNI fits into the entire equation. To understand it better, you need to know who HNIs are.

Who is an HNI?

HNI is the short form for High Net-Worth Individual. This is a category separately defined in IPO investment in India, in the Non-Institutional Investors section (since this category concerns retail investors who invest with a high capital). The Non-Institutional Investors category (NII) also consists of NRIs, HUFs, FPIs, Trusts and Companies.

High Net-Worth Individuals, or HNIs, enjoy a 15% reservation of IPO shares in a private company, as per SEBI regulations. HNIs typically invest with a minimum capital of ₹2,00,000 in IPOs. This gives them a chance to cash in on profits in just seven days if the stock they bought performs well.

Steps for Applying as an HNI in IPO

HNIs opting to invest in IPOs must fill out the ASBA, or Application Supporting the Blocked Amount. In the event that they are shortlisted during allotment, the amount (minimum ₹2,00,000) that they had blocked for the IPO stock will then be debited from their accounts.

IPOs cannot be applied to through discount brokers using UPI methods as an HNI; you will need to have access to either a net banking account or by physically submitting the IPO application.

Here is the list of steps you need to follow to apply to IPO as an HNI through net banking:

  1. You will first need to access your internet banking portal. Log in to your internet banking account
  2. Seek out the IPO tab, and find the "IPO Application" button. You will then be redirected to the online IPO application system
  3. When the page loads, select the HNI category
  4. Proceed to bid for the lots presented; the total amount should exceed ₹2,00,000
  5. IPO system does not allow HNIs to set the cut-off bid price. It is automatically blocked at the highest bid. Block your application amount here and wait until the final allotment.
  6. In the event that you are allotted the shares, the amount you blocked will be debited from your account.
  7. In case there has been an oversubscription of shares, you will receive an only partial allotment of IPO, and the debit amount will be proportionately reduced.

Let's now look at various types of investors who can participate in IPOs.

Investor Profiles

Each of these categories of investors enjoys a specific percentage of reserved shares in IPO stock.

RII (Retail Individual Investors)

An Indian resident, NRI or HUF who blocks up to ₹2,00,00 in IPO stock falls under this category. 35% of shares of IPO are reserved for this category. Bid withdrawal can be done until the allotment day. In case of oversubscription, the minimum bid lot will be allotted.

QIBs (Qualified Institutional Buyers)

Foreign Portfolio Investors, Public Financial Institutions and Mutual Funds are eligible to apply under this category. Companies are mandated to reserve at least 50% of IPO shares for this category of investors. These investors need to first register with SEBI in order to invest in IPOs.

Additional Information for HNI in IPOs

In addition to the fact that HNIs need to invest a minimum of ₹2,000,00 in IPOs, there are certain other things that affect this investment:

  • The total investable assets in possession of HNIs value well over ₹2 crores
  • HNIs are not entitled to receiving any discounts from the issuing company for IPO stocks
  • In an oversubscribed IPO, a HNI receives:
    • Guaranteed one lot if the bid size is equal to or greater than oversubscriptions in the same (NII) category
    • The minimum lot and a proportion of the remaining shares according to bid size, in case of small oversubscription
    • In case of huge oversubscription, allotment is done according to lottery

Conclusion

As a High Net-Worth Individual, you have the potential to really rake profits from investing in IPOs. The key lies in investing in the right lots at the right time. The entire process happens online, therefore inconvenience isn't an issue - all you need is a net banking set-up and eligible bank balance to invest in IPOs.

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