When a company decides to go public and offer shares to investors for the first time, it opens up an opportunity for anyone to become part-owners of the company. Any individual, company or financial institution can take part in Initial Public Offerings (IPOs) to generate wealth.
To keep the IPO process fair, there are different categories of investors. Different IPO investors have different allocations and application rules. In this article, we will talk about the various categories of IPO investors and understand their role in the process.
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Retail Individual Investors
Retail investors in IPOs are the members of the general public who can invest a limited amount. They typically invest smaller amounts of money (less than Rs. 2 lakh) compared to other types of investors.
Retail investors play a vital role in the IPO as they provide liquidity and help determine the price of the shares. By participating in an IPO, retail investors can potentially benefit from the company’s growth and increase in share value.
Non-Institutional Investors
Non-institutional investors are those who invest more than retail investors. However, they are not regulated financial institutions. Examples of NIIs are:
- HNIs (High Networth Individuals)
- Trusts
- Societies
- Corporate bodies
This investor category for IPOs has the ability to invest significant amounts of money (basically over Rs. 2 lakhs) and is typically given a separate quota in an IPO. Non-institutional investors are an essential part of the IPO process as their investments contribute to the overall demand for the shares.
Qualified Institutional Buyer
Qualified Institutional Buyers (QIBs) are institutional investors who have been designated by the Securities and Exchange Board of India (SEBI) to participate in an IPO. These include –
- Mutual funds
- Foreign institutional investors
- Banks
- Insurance companies
- Pension funds
QIBs are sophisticated investors who are often given a larger allocation of shares in an IPO. Their participation adds credibility and stability to the IPO process.
Additional Read: IPO Eligibility
Eligible Employees
Eligible employees are individuals associated with the company going public and have been offered shares as part of their employment package.
This category allows employees to participate in the IPO and potentially benefit from the company’s success. The human resources department plays a crucial role in ensuring eligible employees are aware of their rights and the procedures to follow when participating in the IPO.
Eligible shareholders are existing shareholders of the company who are given the opportunity to sell their shares during the IPO.
This category of investors can include founders, early investors, and private shareholders who want to monetise their investments. By selling shares during the IPO, eligible shareholders can realise their gains and diversify their investment portfolios.
Anchor Investors
Anchor investors are institutional investors who are invited to invest in an IPO before the book-building process starts. They provide confidence and credibility to the IPO by demonstrating their trust in the company and its future prospects.
These investors often invest significant amounts of money, and their participation sets a benchmark for other investors, signalling the potential value of the IPO.
IPO investors play a crucial role in the journey of a company going public. From retail investors to qualified institutional buyers and eligible employees, each category brings unique value to the IPO.
By participating in an IPO, investors have the opportunity to become part-owners of the company and potentially benefit from its growth and success. Whether you are an individual investor or an institution, investing in an IPO can be an exciting opportunity to be part of a company’s expansion. Invest in your preferred company’s IPO through Bajaj Financial Securities by opening a demat account with us.
Frequently Asked Questions:
Retail investors in an IPO are individual investors who invest smaller amounts of money compared to institutional investors. They form a significant part of the IPO process, providing liquidity and helping determine the share price. While the amount they invest is small, retail participation is essential to any IPO’s success
Securities and Exchange Board of India (SEBI) determines the limit for retail investors in an IPO. As of now, retail investors can invest up to Rs. 2 lakh per IPO. This limit helps ensure broader participation and equal opportunity for retail investors
Non-institutional investors in an IPO are high-net-worth individuals, trusts, societies, and corporate bodies who can invest significant amounts of money. They have a separate quota and contribute to the overall demand for shares during the IPO process
In India, QIBs are institutional investors who can participate in IPOs. They include mutual funds, foreign institutional investors, banks, insurance companies, and pension funds. QIBs are sophisticated investors who get a larger share allocation in IPOs.
The employee category in an IPO includes eligible employees associated with the company going public. They are offered shares as part of their employment package and have the opportunity to participate in the IPO. This category allows employees to potentially benefit from the company’s success and growth.
Anchor investors are institutional investors who invest in an IPO before book-building. They provide credibility, invest significant amounts, and set benchmarks for other investors.
Anyone who is eligible and meets the criteria set by the Securities and Exchange Board of India (SEBI) can buy an IPO. This includes retail investors, institutional investors, eligible employees, eligible shareholders, and anchor investors. All you need is a demat account to purchase shares from an IPO.
To become an IPO investor, you need to open a demat account with a registered depository participant. Once you have a demat account, you can apply for IPOs through your chosen bank or stockbroker. The application process typically involves filling out an online or physical application form and submitting the necessary documents. It is essential to stay updated with IPO announcements and review the company’s prospectus before making an investment decision.
