What are the different types of IPO investors?

14 May 2021|

1 min read |

by ICICI Securities Team

IPOs have always piqued investors' attention because they offer a great opportunity to invest in high-quality businesses looking to raise capital. Strong stable companies' initial public offerings (IPOs) provide a win-win situation for both the business and the investors.

Whenever an initial public offering (IPO) gets announced, you have already heard that there are many types in which investors can invest. Different slots for different types of investors are also available for the IPO subscription. A reserved quota or percentage of shares – out of the total number of shares that the organisation wishes to list – exists for each category.

In comparison to individual investors, larger institutions or institutional investors are preferred buyers of stock for businesses. As a result, these preferred stockholders have slots available on various dates and times. The number of shares allotted gets determined by the category in which one has applied. Let us look at all the different ways individuals, institutions, and others can invest in a business through its initial public offering.

Retail Individual Investors (RII):
This is the most popular reason for submitting an IPO application. It includes both resident Indians and non-resident Indians, as well as HUFs. The maximum sum that can be invested in this category is Rs. 2 lakhs. This category allows bidding at the cut-off price, with RII receiving at least 35% of the total offer.
Non-institutional bidders (NII):
The NII category is open to all Retail Category applicants who wish to apply for an amount greater than two lakhs. This group receives a minimum of 15% of the bid. Non-institutional bidders are eligible for 15% of the total offer. They have the option of withdrawing their bids before the day of the allotment. They are not, however, entitled to bid at the cut-off price.
Qualified Institutional Bidders QIB):
This group includes all public financial institutions, commercial banks, foreign portfolio investors, mutual funds, and other similar entities. All such organisations necessarily need to be registered with SEBI before applying. A limit of 50 % of the bid gets reserved for QIBs. They are not allowed to bid at cut off the price and cannot withdraw their offers after the closing of the IPO.
Anchor Investor:
This group includes Qualified Institutional Buyers applying to invest ten crores or more through the book-building process. Up to 60 % of the QIB group may be allocated to Anchor Investors. The price of the problem for Anchor Investors gets set separately. Anchor Investors need a minimum application size of 10 crores, and merchant bankers, promoters, and their immediate relatives are not eligible. They cannot bid at the cut-off price because they are not eligible.
Foreign Institutional Investors (FII):
This group includes all foreign investors who are citizens of another country and wish to invest in an IPO. This IPO investor prefers to invest in companies from emerging economies with fast growth rates, such as India.

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