Chapter 11: Types of IPO investors

What do you do when you’re sitting at home on a dull day craving that delicious “Gajar Ka Halwa” or “Aloo Matar Tikki”, and unfortunately, you don’t know how to make it yourself?

That’s right! You pick up that smartphone of yours and click on that little red icon that says “Zomato.”

Did you know that your ever-so-favourite food delivery company Zomato went public on Jul 14, 2021? Yes, it did, and the IPO was subscribed 38.25 times, out of which retail investors like you only subscribed 7.45 times.

So, who were the others who subscribed for the IPO?

Well, there are different types of IPO investors. Let’s find out who they are one by one.

Types of IPO investors

1.  Retail Individual Investors (RII)

Retail individual investors [RIIs] are those who can apply for shares less than or up to Rs. 2 lakh in an IPO. They have an allocation of 35% of shares of the total issue size in book building IPOs. 35% quota is applicable for those companies who had three straight years of profit. Companies that can’t meet this criterion, can allocate only 10% to retail investors. Even NRIs who apply for an IPO with less than Rs. 2 lakh fall under the RII category. 

So, what about investors who want to apply for shares of more than Rs. 2 lakh?

 Well, that brings us to the next type of IPO investors. 

2.  Non-Institutional Investors (NII) and High Net-worth Individuals (HNIs) 

High Net Worth individuals [HNIs] are a category of investors who invest more than Rs. 2 lakh. Similarly, institutions, such as big companies, large trusts, and similar institutions, are looking to subscribe for more than Rs. 2 lakh are called Non-Institutional Investors (NIIs). These investors have an allocation of 15% in an IPO and are not required to register with SEBI.

3.  Qualified Institutional Buyers (QIBs)

Qualified institutional buyers [QIBs] are individual entities in the form of associations or firms. Banks, mutual fund companies, Foreign Institutional Investors [FIIs] registered with SEBI, and typically represent smaller investors, are allotted 50% of the IPO. For the companies that don’t have three straight years of profit, the QIB quota is 75%. QIBs cannot opt for the cutoff price.

4.  Anchor Investors

This new category of investors introduced in 2009 by SEBI is a form of QIB that can make an application for a value of ₹10 crore or more through the book-building process. Anchor investors invest in IPO before the issue is open to the public — attracting investors and helping to gain public confidence before the IPO goes public.

So, how are anchor investors different from QIBs?

Well, here’s how anchor investors are different:

  • The bidding for Anchor Investors shall open a day before the issue opens They will have to apply for shares of more than ₹10 crore
  • They are a subset of QIBs which means a part of QIB allocation is reserved for anchor investors. Up to 30% of the QIB portion is available to anchor investors
  • They have a lock-in period of 30 days. This means they cannot sell their shares for 30 days from the date of allotment of the shares via an IPO

So, to answer the question – who other than retail investors as you subscribed to Zomato IPO.

Category

Subscription (times)

QIB

51.79

Non-Institutional Investors

32.96

Retail Investors

7.45

Employees

0.62

Total

38.25

Where the quota reservation was as follows:

Category

Size of the quota reserved (%)

QIB

75

NII

15

Retail Investors

10

While the employee quota for this IPO was a total of 65 lakh shares for eligible employees.

Additional Read: How an initial public offering (IPO) is priced?

Summary

  • There are four types of investors for IPO — Retail Individual Investors (RII), Non-Institutional Investors (NII) and High Net-worth Individuals (HNIs), Qualified Institutional Bidders (QIBs) and Anchor Investors.
  • Retail individual investors [RIIs] can apply for shares less than or up to Rs. 2 lakh in an IPO.
  • High Net Worth individuals [HNIs] can apply for shares of more than Rs. 2 lakh.
  • Qualified institutional buyers [QIBs] are individual entities in the form of associations or firms.
  • Anchor investors are institutional investors who are granted shares before the IPO opens.

Now that you know who can invest in an IPO, let's understand the workings of an IPO in the next chapter.

Disclaimer –

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, IPO related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.