Who are anchor investors? Role of anchor investors in IPO

Here’s all about anchor investors and their role in an IPO.

Who are anchor investors, and what role do they play in IPOs

There has been an increased interest in Initial Public Offerings (IPOs) off late, with many new IPOs having stepped out in 2021. According to the Securities and Exchange Board of India’s (SEBI) classification, different types of investors invest in IPOs. These include high net-worth individuals (HNIs) or non-institutional investors (NII), qualified institutional investors (QIIs), retail investors, and, lastly, anchor investors. This article will discuss who are anchor investors and the role of anchor investors in IPOs.

What is an anchor investor?

An anchor investor is a qualified institutional investor. An anchor investor in an IPO is the initial investor who invests before the IPO is made available to the public. Typically, an anchor investor must make an application of at least Rs. 10 crore in the IPO. Anchor investors can be of different types, such as mutual funds, foreign institutional investors, banks, provident funds, and more. However, mutual funds have a 1/3rd reservation in the anchor investment portion.

Anchor investors can receive up to 60% of shares of qualified institutional investors in an IPO. Previously, institutional investors only had a 30% share in allocation. A company needs at least two anchor investors for an issue size of up to Rs. 250 crore. For larger issue sizes, a company can require up to five anchor investors.

Also Read: All About IPOs In India

How do anchor investors work?

Anchor investors can apply to an IPO with a 25% margin of their application. The balance amount is covered within two days from the end of the issue. The issue price is then set as per the book-building process. If the price of anchor investors is lower than the fixed price, they are responsible for bridging the gap. However, if the price is higher, anchor investors have to bring the extra funds. Anchor investors have a lock-in period and can sell their shares only 30 days after the allotment.

The company has to publicly share the details of anchor investors before opening the issue. This information is displayed in the BSE Notices and NSE Circulars one day prior to the IPO launch date.

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

What is the role of anchor investors?

Anchor investors play a crucial role in IPOs. Here are some important things to know in this regard:

  • While retail investors can always check broker reports to gauge the potential of the issuing company, anchor investors offer a more professional and in-depth understanding of the IPO. 
  • These investors are the initial investors of the IPO. As a result, they confirm the IPO’s authenticity and make it more appealing to the public. 
  • As their name suggests, these investors act like anchors, covering the gap between the issuing company and the public. A list of well-known anchor investors can increase the demand for an IPO.  
  • They also help in improving the price discovery of the IPO. 

Also Read: Different types of IPO investors

To sum it up

Now that the anchor investor meaning is clear, do check the list of anchor investors before you invest in an IPO. This can help you make better investment decisions. 

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