How to Apply for an IPO Under the HNI Category? Rules and Types

An Initial Public Offering (IPO) marks an essential moment for companies as they invite public investment, allowing investors to participate in their growth journey. For high-net-worth individuals (HNIs) in India, participating in an IPO under the HNI category presents a unique avenue to invest in companies poised for expansion. 

With 7,97,714 HNIs in India holding assets exceeding USD 1 million in 2022, this segment of investors plays a crucial role in the capital markets. However, the process of applying for an IPO under the HNI category is not without its complexities. This process requires careful consideration, as the choices made during the application can significantly impact the success of the investment. 

What is the HNI category in IPO?

The term HNI in IPOs refers to High Net Worth Individuals, usually investors who apply for shares with a value exceeding ₹2 lakhs. If you are wondering what HNI is an IPO, it's important to understand that HNIs differ from retail investors, who are restricted to applying for shares worth up to ₹2 lakhs. The HNI category is usually part of the Non-Institutional Investors (NII) quota, which is a segment allocated to large investors who do not fall under the Qualified Institutional Buyers (QIB) or retail investor categories.

What are the allotment rules for HNI category in IPO?

1. Minimum application amount: As discussed above, the key criterion for applying under the HNI category is the minimum application amount, which should exceed ₹2 lakhs. This threshold distinguishes HNIs from retail investors.
2. Proportionate allotment: Unlike the retail category, where shares are often allotted on a lottery basis if the IPO is oversubscribed, HNIs receive shares on a proportionate basis. This means that if an IPO is oversubscribed, HNIs will receive shares in proportion to the amount they applied for.
3. Payment mechanism: When applying for an IPO, HNIs are required to pay the full amount upfront. HNIs must ensure that their account is funded for the entire application amount at the time of submission.
4. No withdrawal post-closure: Once the IPO application window closes, HNIs cannot withdraw their application, which differs from some retail investor rules. This necessitates careful decision-making before committing to the application.
5. Regulatory guidelines: SEBI sets regulations governing the HNI category in IPOs. These guidelines ensure transparency and fairness in the allotment process, maintaining a level playing field among different investor categories.

What types of IPOs are available for HNIs?

1. Mainstream IPOs: These are the most common types of IPOs to apply. HNIs often participate in these offerings to gain exposure to well-known brands and industries. The allotment process for mainstream IPOs follows the rules outlined for the HNI category, including proportionate allocation based on demand.
2. SME IPOs: Small and Medium Enterprises (SMEs) also raise funds through IPOs, and HNIs can participate under the SME category. Due to their smaller size and market presence, SME IPOs are often seen as higher-risk investments. However, they can offer significant upside potential. The SME IPO HNI allotment rules are similar to those of mainstream IPOs, but they typically involve lower application amounts.
3. Fixed-price IPOs: In a fixed-price IPO, the company issuing shares sets a fixed price at which all investors, including HNIs, can apply. This type of IPO is straightforward, with HNIs knowing exactly how much they are investing per share. The allotment process remains proportionate, and the full application amount must be paid upfront.
4. Book-built IPOs: Book-building is a process where the final issue price is determined based on investor demand. HNIs in book-built IPOs can bid within a specified price range, indicating the maximum price they are willing to pay. The final price is set after the bidding process closes, based on the highest demand. Allotment follows the proportionate rules, and HNIs must ensure their bids are competitive to secure shares.

Invest strategically with IPOs under the HNI category

With a clear understanding of the rules and various types of IPOs available, HNIs can strategically tap into promising market ventures. By familiarising yourself with the application process and adhering to the specific guidelines, you can make the right financial decision. This proactive approach ensures that you are ready to capitalise on opportunities, ultimately leading to more successful and strategic investments.Begin your investment journey by staying informed and prepared for forthcoming IPOs with reliable and trusted trading and investing platforms like Ventura. These platforms offer up-to-date information and provide tools for a better investing experience.