Loading…
By IPOCheckr Editorial TeamLast reviewed
Every mainboard IPO divides its shares into investor categories. Individuals bidding up to ₹2 lakh are retail; above ₹2 lakh they are non-institutional investors (NII), split into ₹2–10 lakh (often called sHNI) and above ₹10 lakh (bHNI). Institutions bid as QIBs, part of which can go to anchor investors. Companies can also reserve shares for employees and for shareholders of a listed parent or subsidiary. Each category is allotted separately.
Individuals bidding up to ₹2 lakh. Each successful applicant gets at least one lot, chosen by draw of lots if oversubscribed.
Individuals and others bidding above ₹2 lakh up to ₹10 lakh. One-third of the NII portion.
Bids above ₹10 lakh. Two-thirds of the NII portion.
Mutual funds, insurers, banks, FPIs and other qualified institutions, including anchor investors.
Optional quotas for eligible employees and shareholders, carved out before the net offer.
SEBI's ICDR Regulations set the split. For a company that meets the profitability track-record tests (an issue under Regulation 6(1)), the net offer is currently allocated as: not less than 35% to retail individual investors, not less than 15% to non-institutional investors and not more than 50% to qualified institutional buyers.
A company that does not meet those tests can still list under Regulation 6(2), but then at least 75% must go to QIBs, not more than 15% to NIIs and not more than 10% to retail. That is why some large issues have a small retail portion.
Within the QIB portion, up to 60% can be allocated to anchor investors, and 5% of the rest is set aside for mutual funds.
Unsubscribed shares in the retail or NII category can be moved to other categories, so the final split is reported in the basis of allotment.
Take a ₹1,000 crore net offer, with no employee or shareholder reservation, and assume the company uses the maximum QIB share.
A retail individual investor is an individual whose total bid does not exceed ₹2 lakh. Retail is the only net-offer category allowed to bid at the cut-off price, which keeps the bid valid wherever the final price lands in the band. Retail investors can also modify or withdraw bids until the issue closes.
Allotment rules: each allotted retail applicant must get at least one lot, subject to availability. If there are more valid applications than available lots, a computerised draw of lots decides who gets one. Any shares left after giving one lot to every selected applicant are distributed proportionately. In heavily oversubscribed issues this means most successful applicants get exactly one lot, no matter how many lots they bid for.
Anyone who is not retail and not a QIB falls into the NII category: individuals bidding above ₹2 lakh, companies, trusts, HUFs bidding above the retail limit and others. Since April 2022 SEBI has split the NII portion in two. One-third is reserved for applications above ₹2 lakh up to ₹10 lakh (commonly called small HNI or sHNI) and two-thirds for applications above ₹10 lakh (big HNI or bHNI).
Each NII allottee must receive at least the ‘minimum application size’ for that sub-category, subject to availability. The minimum application size is the smallest number of lots that takes you above ₹2 lakh (for sHNI) or above ₹10 lakh (for bHNI). When demand is high, the registrar allots this minimum to applicants chosen by draw of lots, in the same spirit as retail. Unsubscribed shares in one sub-category can move to the other.
Example: with a lot costing ₹14,800, 13 lots is ₹1,92,400 (retail), while 14 lots is ₹2,07,200 – the minimum sHNI application. For bHNI the minimum is the first number of lots above ₹10 lakh: 68 lots (₹10,06,400).
Two practical differences from retail: NIIs cannot bid at cut-off and must enter a price, and SEBI does not allow NIIs or QIBs to withdraw or lower their bids once placed. Individuals bidding up to ₹5 lakh can currently use UPI; larger bids are made through net banking ASBA or the broker's bank-ASBA route.
QIBs include mutual funds, insurance companies, banks, registered foreign portfolio investors, pension and provident funds and certain alternative investment funds. Their allotment is proportionate within the category, and individuals cannot apply as QIBs.
Anchor investors are QIBs who bid one working day before the issue opens, with a minimum application of ₹10 crore on the mainboard. Their allocation is disclosed to the exchanges before the public issue opens, and their shares are locked in for 30 days (half) and 90 days (the other half). See our anchor investor guide for details.
A company can reserve up to 5% of its post-issue capital for eligible employees. Employees bid in this quota up to ₹5 lakh, but the initial allotment value per employee is capped at ₹2 lakh. Only if the employee portion is undersubscribed can the unsubscribed shares be allotted beyond ₹2 lakh, up to a total of ₹5 lakh. Some issuers also offer employees a discount to the issue price; the RHP states it.
An eligible employee can apply in the employee quota and also in the retail category, because SEBI's reservation rules exempt employees from the ban on applying in both a reserved category and the net offer.
When the IPO company is a subsidiary of a listed company (or has a listed subsidiary), it can reserve up to 10% of the issue size for shareholders of that listed company, other than promoters and the promoter group. Eligibility is fixed by a cut-off date stated in the RHP, so shares bought after that date usually do not qualify.
An eligible retail individual shareholder can apply in the shareholder quota and in the retail category. The RHP sets the application limit for the shareholder quota and explains how bids above ₹2 lakh are treated, so check it for each issue. Because shareholder quotas are often smaller pools with fewer eligible applicants, they are a genuine second route for eligible investors – but subscription in them can still be heavy.
Which category you land in depends on who you are and how much you bid.
Primary rules and official pages this guide was checked against. Rules change, so the official text always prevails.
General information, not investment advice. Rules set by SEBI, RBI and the exchanges can change, so confirm current limits with your broker or the offer document.