How to apply for IPO under HNI category

Initial Public Offerings (IPOs) represent a significant opportunity for investors to participate in a company's growth journey from its early public trading days. While retail investors form a substantial portion of IPO applicants, high-net-worth individuals (HNIs) operate within a distinct category with specific requirements and potential advantages.

This article explains how to apply for IPO under HNI category, detailing eligibility criteria and the application process, along with insights into the HNI IPO application process.

Who is an HNI?

In the Indian IPO context, High-Net-Worth Individuals (HNIs) are classified as non-institutional investors who invest a minimum of ₹2 lakhs in a single IPO application. This classification sets them apart from retail individual investors who typically invest smaller amounts. According to Securities and Exchange Board of India (SEBI) regulations, approximately 15% of the total shares in an IPO are specifically reserved for the HNI category.

The HNI segment encompasses various entities beyond just wealthy individuals, including Hindu Undivided Families (HUFs), Non-Resident Indians (NRIs), Foreign Portfolio Investors (FPIs), trusts, and certain companies. The distinguishing factor remains the investment amount rather than the type of investor. This threshold defines the Minimum investment for HNI IPO, which is currently set at ₹2,00,000 per application.

The IPO shares' lock-in period is not the same for everyone. It depends on the type of investor. Retail investors, pre-IPO investors, and promoters all face different lock-in rules, often referred to as IPO shareholding restrictions.

What makes the HNI category attractive to many investors is the ability to apply with larger bid sizes, which potentially translates to greater allocations and returns if the stock performs well after listing. This form of High Net Worth Individual IPO investment allows investors to deploy larger capital strategically. However, it comes with its own set of considerations that investors must carefully evaluate.

How to apply for IPO in HNI category?

Here's a step-by-step guide on how to apply for IPO in HNI category:

1. Login to your trading account: Access your Demat and Trading Account through your broker's platform.

2. Navigate to the IPO section: Most trading platforms have a dedicated IPO section where you can view current offerings.

3. Select your desired IPO: Choose the IPO you wish to invest in from the available listings.

4. Choose HNI investor type: Select the HNI category (sometimes labelled as Non-Institutional Investor) when prompted for investor type. This is a crucial step in understanding how to bid in HNI IPO category correctly.

5. Enter bid details: Specify the number of lots you wish to apply for and your bid price. Remember, the total investment must exceed ₹2,00,000 to qualify for the HNI category.

6. Payment method selection: For amounts up to ₹5,00,000, you can typically use UPI for payment. For larger amounts, you'll need to apply through the Application Supported by Blocked Amount (ASBA) facility, requiring a net banking setup with your bank. These are among the commonly used HNI IPO funding options.

7. Review and submit: Carefully review all details before final submission. Note that HNI applications cannot be cancelled or modified after submission.

8. Mandate confirmation: If using UPI, approve the payment request on your UPI app. For ASBA, the amount will be blocked in your account until allotment.

Understanding how to apply for IPO in HNI category is essential for high-net-worth individuals aiming to access larger share allocations.

Benefits and risks of applying as an HNI

Investing in IPOs as an HNI offers distinct advantages but also comes with specific risks that investors should carefully consider. This difference becomes evident when comparing HNI vs retail IPO allotment structures.

Benefits

• Priority allocation: With a dedicated 15% quota, HNIs often have better chances of securing allocations compared to retail investors, particularly in popular IPOs.
• Higher profit potential: Larger investment amounts can translate to greater returns if the stock performs well post-listing.
• Strategic positioning: HNI participation allows for more strategic positioning in promising companies at their earliest public trading stage.
• No cut-off price limitation: Unlike retail investors, HNIs can place specific price bids, offering more control over the investment.

Overall, these factors highlight the Benefits of applying in HNI IPO category for investors with higher capital capacity.

Risks

• Capital blockage: Substantial funds remain blocked from application until allotment, potentially limiting liquidity for other investment opportunities.
• No guaranteed allocation: In heavily oversubscribed IPOs, even HNIs might receive only partial allotments or, rarely, no shares at all.
• No price discounts: Unlike some retail categories, HNIs aren't eligible for any discounts on the issue price.
• Market volatility exposure: Larger investments mean greater exposure to post-listing volatility, which can significantly impact returns.

Different investor profiles in IPOs

The Indian IPO market categorises investors into distinct segments, each with specific allocation quotas and requirements:

Retail Individual Investors (RIIs):

• Investment ceiling of up to ₹2,00,000
• Benefit from a 35% reservation of IPO shares
• Can place bids at the "cut-off" price
• Designed to encourage broad public participation

Qualified Institutional Buyers (QIBs):

• Include mutual funds, commercial banks, FPIs, and public financial institutions
• Enjoy a substantial 50% reservation of the total IPO shares
• Must be SEBI-registered entities
• Bring stability and credibility to IPOs through their participation

Non-Institutional Investors (NIIs/HNIs):

• Minimum investment of ₹2,00,000
• Have a 15% reservation in IPOs
• Include wealthy individuals, NRIs, HUFs, and certain companies
• Cannot bid at "cut-off" price, requiring specific price bids

Financial advisors often educate clients on how to apply IPO in HNI category to help them navigate the complex application process.

Key considerations for HNI IPO applications

Now that you know how to apply for IPO in HNI category, here are some considerations to take care of when applying:

1. Thorough company analysis: Conduct comprehensive research on the company's financial health, management quality, industry position, and growth prospects before committing substantial capital.

2. Market sentiment assessment: Evaluate recent IPO performances and overall market conditions, as these significantly influence post-listing returns.

3. ASBA facility verification: Ensure your bank provides proper ASBA services for IPO applications, as this is essential for larger investments.

4. Funding preparation: Maintain adequate funds in your account, considering that the entire bid amount will be blocked until allotment.

5. Oversubscription strategy: Develop a strategy for highly popular IPOs, potentially adjusting bid sizes or prices based on expected demand.

6. Tax implications: Consider the tax consequences of potential short-term gains if planning to sell soon after listing.

7. Post-listing strategy: Have a clear plan for your investment after shares are allotted, whether holding for long-term appreciation or booking short-term gains.

Conclusion

Knowing how to apply for IPO under HNI category can give investors an edge in securing higher allotments during popular offerings. By understanding the nuances of this investment avenue, you can make more informed decisions that optimise your capital deployment while managing associated risks.

To simplify this process, Axis Bank offers IPOSmart — a service designed to streamline IPO applications for investors. With this, you can apply for IPOs without relinquishing your funds, allowing you to continue earning interest until the actual allotment. This service eliminates the need for cheques or demand drafts, as the bank manages the payment process directly.

Frequently Asked Questions

1. Is an HNI guaranteed shares if there's no oversubscription?

Yes, in the absence of oversubscription in the HNI category, all valid applications receive full allocation of shares as requested. However, in cases of oversubscription, allotment becomes proportionate based on the number of applications and shares available.

2. Can I apply in both retail and HNI categories?

No, individuals cannot apply under both retail and HNI categories for the same IPO. Such duplicate applications are liable to rejection by the registrar. Your category is determined by your investment amount – applications exceeding ₹2,00,000 automatically fall under the HNI category, while those below this threshold are classified as retail applications.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.