Investors can apply for shares in an IPO in 4 different categories. By choosing the right category, you can certain increase your chances of receiving shares even during an over subscription.
- Retail Individual Investor (RII):
In retail individual investor category, investors can not apply for more then Rs two lakh (Rs 2,00,000) in an IPO. Retail Individual investors have an allocation of 35% of shares of the total issue size in Book Build IPO’s.NRI’s who apply with less then Rs 2,00,000 /- are also considered as RII category.
Allotment Basis – If IPO doesn’t get over-subscribed in RII Category, full allotment to all applicants. If IPO is oversubscribed in this category – The allotment to each investor shall not be less than the minimum Bid Lot, subject to availability of Equity Shares in the Retail Portion.
- Non-institutional bidders:
Individual investors, HNI’s, NRI’s, companies, trusts etc who bid for more then Rs 2 lakhs are known as Non-institutional bidders. They need not to register with SEBI like RII’s. Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPO’s.
Allotment Basis – Proportionate. For example, if IPO is subscribed 100 times in NII category, investors who applied for 100 shares will get 1 share. Not less than 15% of the Offer is reserved for NII category.
- Qualified Institutional Bidders (QIB’s):
Financial Institutions, Banks, FII’s and Mutual Funds who are registered with SEBI are called QIB’s. They usually apply in very high quantities. QIBs are mostly representatives of small investors who invest through mutual funds, ULIP schemes of insurance companies and pension schemes.QIB’s have an allocation of 50% of shares of the total issue size in Book Build IPO’s.
Allotment Basis – Proportionate.
- Anchor Investor:
SEBI introduced the concept of anchor investors in 2009 to improve the price discovery during Initial Public Offers (IPOs). An anchor investor in a public issue refers to a qualified institutional buyer making an application for a value of Rs 10 crore or more through the book-building process.
So to summarise – In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35:15: 50 respectively.
– Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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