Different types of IPO investors: Qualified institutional investors, anchor investors, retail investors, HNIs

Last year, 65 companies in India raised about Rs 1.3 lakh crore from the primary markets, making 2021 one of the most successful years for Indian IPOs in recent times.

As can be expected in such cases, many IPOs were oversubscribed. For instance, Latent View Analytics’ IPO was subscribed over 325 times, with investors across categories - NIIs, QIIs, and retail investors - bidding several hundred times their allotted portions. Even the employees’ portion was oversubscribed.

This can make one wonder: what are the different types of investors bidding for IPOs? Let’s find out.

Also Read: All About IPOs In India

Types of investors in IPO

At the outset, do note that market regulator SEBI (Securities and Exchange Board of India) has categorised investors participating in the IPO process into four segments - Qualified Institutional Investors (QIIs), anchor investors, retail investors, and High Net-worth Individuals (HMIs) and Non-Institutional Investors (NIIs).

Let us now take a closer look at these investor types:

1. Qualified institutional investors

QIIs are institutions that have the expertise and financial background to make strategic investments in capital markets. They include:

• Commercial banks;
• Public financial institutions;
• Mutual fund houses;
• Foreign portfolio investors.

QIIs are important for the company issuing an IPO, as they buy large chunks of the new shares. The more shares they buy, the less the number of shares available for the public. This pushes up the stock price, enabling the company to raise more capital. However, SEBI has mandated that QIIs cannot be allocated more than 50% of shares.

QIIs have several advantages, such as the following:

The QII process is quicker than issuing shares to the public;
It is cost-effective as there’s no need to have a big team of bankers, advocates, and auditors to get approvals;
QIIs have both the funds and opportunity to buy large stakes.

Also Read: A Woman's Guide To Investing In IPOs

2. Anchor investors

QIIs who can invest at least Rs 10 crore are called anchor investors. Typically, their presence stokes confidence among other investors. Up to 60 per cent of QII allotment can be sold to them.

Advantages of anchor investors are as follows:

• Typically, they have information about the company that is not commonly available, which allows them to invest wisely. Their presence brings confidence in the IPO;
• For the same reason, the size of their participation sends signals about the issue.

3. Retail investors

Retail investors are individuals investing less than Rs 2 lakh. SEBI mandates a minimum allocation of 35% of total shares for them in an IPO, and in case of oversubscription, at least one lot of share for everyone. If that is not possible, the regulator permits a lottery. This apart, typically, 1%-2% of shares are earmarked for the issuer’s employees.

Also Read: Stellar IPOs Of 2021: A Round-Up

4. High net-worth individuals (HNIs)/Non-institutional investors (NIIs)

Any individual or institutional investor investing over Rs 2 lakh in an IPO is an HNI or NII, respectively. Companies typically reserve around 15% of the offer for NIIs.

NIIs include:

• HUFs;
• Companies;
• Societies and trusts.

What sets them apart from QIIs is that they are not required to get registered with SEBI.