As more and more investors join the equity culture in India, they are facing issues in understanding the technical terms used in IPOs. In this series, we aim to demystify these terms (or rather jargons) for newcomer investors. There are broadly the following three IPO investor categories:
Qualified Institutional Bidder (QIB) – As the name suggests, QIBs are qualified institutional buyers as defined by SEBI’s Issue of Capital and Disclosure Requirements (ICDR) regulations. Generally, 50% of the offer is reserved for QIBs. Typical examples are foreign portfolio investors (FPIs) (other than Category III FPIs), scheduled commercial banks, mutual funds registered with the SEBI, venture capital funds registered with SEBI, foreign venture capital investors (FVCIs), alternative investment funds (AIFs), multilateral and bilateral development financial institutions, state industrial development corporations, insurance companies registered with the Insurance Regulatory and Development Authority (IRDA), provident funds with a minimum corpus of INR250 million, pension funds with a minimum corpus of INR250 million.
Non-Institutional Investor (NII) – This category is a fancy term for affluent investors who can invest more than INR200,000. In other words, these are high networth individuals (HNIs). Generally, 15% of the offer is reserved for this category. Bids in the category need to exceed INR200,000. Typical examples include Category III FPIs, resident Indian individuals, HUFs (in the name of Karta), companies, corporate bodies, eligible NRIs, scientific institutions, societies and trusts.
Retail Individual Investor (RII) – This category is purely meant for small investors, whose bid should not exceed INR200,000 per person. Usually, 35% of total shares are reserved for this category in case of the company with profitable operations. In the event of the IPO-bound company not fulfilling this criterion, only 10% shares are reserved for retail investors. This is to safeguard small investors from risky businesses, although this may change going forward. Resident Indian individuals, HUFs (in the name of the Karta) and eligible NRIs not falling in the NII category can apply under the RII category. As you can clearly see, the biggest differentiating criterion between NII and RII is the size of application.
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This is to be noted that the above IPO investor categories are valid only for equity offers. For debt public offers such as Non-Convertible Debentures (NCDs), the definitions are different. For example, retail investors can make an application of up to INR5,00,000.