When an initial public offering (IPO) occurs, investors pay attention because it is a good chance to participate in a solid company seeking to acquire money. Initial public offerings (IPOs) by strong, stable businesses benefit both the company and investors.
Everyone knows that investors have a wide range of options when it comes to investing in an upcoming IPO. For the IPO subscription, various slots are offered for different kinds of investors. Each category has a set quota or percentage of the total number of shares that the company wants to list.
Larger organizations, such as pension funds and endowments, are more likely than individual investors to purchase company shares. They have spaces available on different days and hours as a consequence.
Depending on the category you applied for, you'll be assigned a certain amount of shares. Let's take a look at all the various ways individuals, institutions, and others may participate in a company via the IPO.
These non-institutional investors are QIB investors, NII investors, Anchor Investors, and RII investors. Today, we’ll be having a look at all these investor categories. But first, let’s understand who exactly is an investor.
Who is an Investor?
An investor is someone who puts money into a business in the hopes of seeing a return on that money. In order to make a profit and achieve key financial goals such as saving for retirement, paying for a child's education, or just growing wealth over time, investors use various financial instruments.
Stocks, bonds, commodities, mutual funds, exchange-traded funds (ETFs), futures, foreign currency, gold, silver, retirement plans, and real estate are just a few of the investment vehicles available to help you reach your objectives. To reduce risk while increasing profits, investors may look at possibilities from a variety of perspectives.
There is a big difference between an investor and a trader. An investor uses capital for long-term benefit, while a trader buys and sells assets repeatedly in order to make money in the short term. Equity or debt investments are the most common ways that investors earn profits. Capital gains and dividends may be generated through equity investments as well as stock ownership interests.
Stock ownership interests provide dividends on top of capital gains. For the scope of this article, we will now be analyzing the 3 main investor categories in the stock market.
Who are QIB Investors?
Qualified Institutional Brokers (QIBs) are non-institutional investors who are registered with SEBI. As an initial public offering nears, underwriters sell significant amounts of shares at a profit to qualified investors in order to raise the necessary cash. The SEBI mandates a 90-day lock-in period for businesses that want to allot more than 50% of their shares to QIBs.
QIB/QII investors who apply for above 10 crore shares are known as anchor investors. As the name implies, this pertains to investors who are obliged to purchase shares at a certain price in order to instil confidence in other investors and generate demand for the IPO on the market. Nevertheless, only anchor investors have access to the special fixed pricing structure.
Who are NII Investors?
Non-institutional investors who do not have to register with SEBI to apply for shares are known as non-SEBI investors. HNIs are high-net-worth individuals (II) who invest more than Rs. 2 lakhs in a single investment. The NIIs should also be consulted if an institution wants to subscribe for more than 2 lakhs. Investors get their shares regardless of how well the IPO does.
Who are RII Investors?
Non-institutional investors that apply for shares via the book-building procedure up to 2 Lac only are known as retail investors and may be individuals, NRIs, or HUFs. In comparison to institutional investors, their purchasing power is very low, and they wind up paying large trading commissions or fees.
However, this charge is removed if they invest online, but owing to a lack of market understanding, these investors choose that path. Retail investors, on the other hand, will be able to purchase 35% of the stock.
How to Maximize the Chances of Getting an IPO?
There may be many times when the IPO you want to apply for is oversubscribed. No matter how much you apply, there is no assurance that you would get even one of the two lakhs of quota. So, what should you do in these situations?
For individual investors, the best chance of getting IPO shares is to follow these two simple tips. To begin, make sure the application is complete and accurate. Next, make sure you apply before the cutoff date.
This investor diversification is crucial as it allows for a level playing field and assists in a fair allotment of stocks in an event of an IPO. By reading this post, you might have a clear idea regarding which investor domain you fall into and then make informed investment decisions from thereon.