How do HNI make Investments in IPOs?

An HNI is a retail investor who bids for more than Rs 200,000 worth of equity shares in an initial public offering (IPO). It is a type of investor described in India’s initial public offerings. The Non-Institutional Investors (NII) section includes HNI IPO applications.

The terms HNI (High Net worth Investors) and NII (Non-Institutional Investors) are interchangeable. According to SEBI regulations, the issuing company must set aside a minimum of 15% of the IPO for the NII category.

If you apply for IPO shares in the HNI category, you can get shares worth more than Rs 2 lakh. It also enhances the likelihood of retail investors being allotted. An investor can make a lot of money in just seven days thanks to the cheap IPO funding available in the market. For each IPO, most HNI investors take out a debt for hundreds of crores.

How do HNI make Investments in IPOs?

Meaning of HNI IPO

To invest in an IPO under the HNI category, you must bid for more than 2 lakh rupees in equity shares. Only ASBA’s Net banking facility or the hardcopy IPO application form are available for bidding on the HNI IPO application. Most budget stock brokers do not allow HNIs to apply for IPOs via UPI.

HNI IPO Category

When applying for an IPO, you must apply for more than Rs 2 lakh in the HNI category. The HNI IPO application is part of the NII (Non-Institutional Investor) reserved section of the IPO. According to Indian IPO regulations, NII investors are entitled to 15% of the public offering.

HNI IPO Regulations

  • For HNIs, the minimum IPO application amount is Rs 2 lakhs.
  • HNI allocation is determined by a proportionate or lottery approach depending on your application and NII over-subscription.
  • Within six working days of the Bid/Offer Closing Date, IPO shares are distributed.
  • On the issue closing date, the deadline to apply for IPO shares in the NII category is 4 PM IST.
  • Banks prohibit the bid amount for HNIs in the same way they do for retail applications. If you apply from a savings bank account, the interest profits on the blocked amount will remain.
  • The number of Equity Shares in the specified lots must not exceed the size of the Offer to be considered a Maximum Bid by NII (excluding the QIB Portion).
  • NRIs applying for more than Rs 200,000 fall into the HNI/NII category.
  • Bidding at the Cut-off Price is not permitted for HNIs. They must bid in the issue price range at a fixed price.
  • Non-Institutional Portion must account for at least 15% of the Offer.
  • Only NII bids that are at or above the Offer Price are considered for allotment.

How to Obtain an IPO in the HNI Category?

  1. To begin, log in to your online banking account.
  2. Select “IPO application” from the IPO menu.
  3. This will take you to the online version of the IPO system.
  4.  Investors must choose the HNI category there. Then specify how many lots you want to bid on and how much you want to pay. The total amount should be more than Rs 2 lakhs.
  5. The HNI cannot choose the cut-off price. At the highest bid price, a block mandate is created in the account. If you do this, the application’s amount will be blocked until the final allotment.
  6. The account will be debited only after the allotment of shares.
  7. Only a portion of the shares will be awarded in the case of an IPO oversubscription. According to the allotment, the account will be debited.

You may also read about: Difference between IPO and FPO


HNI IPO Advantages

  • Possibility of purchasing shares worth more than Rs 2 lakh.
  • If you can manage substantial assets for 7 to 10 days, your chances of getting an allotment increase.
  • The monies are kept in your bank account and continue to earn interest.
  • On the day of the IPO’s listing, HNIs can sell their allocated IPO shares in the market. There is no time limit.
  • Almost all banks and NBFCs provide IPO financing at a moderate interest rate of 7 to 10% per year.
  • Unlike QIB, HNIs are not required to register with SEBI or exchanges.
  • HNI NRIs, like local Indians, are eligible to apply for IPOs.

IPO Risks for HNIs

  • HNI investors are unable to change or withdraw their bid.
  • HNI is frequently substantially oversubscribed in the NII category for IPOs with high demand (300 to 1000 times), lowering the odds of allotment.
  • If the number of lots applied is less than the number of times the issue is oversubscribed in the NII category, there is no guarantee of allotment. In this situation, a lottery is held to distribute one lot.
  • The majority of HNIs use interest-bearing IPO funding. If the IPO does not perform well on the market, the investor may suffer a significant loss.
  • HNI investors are unable to bid at the cut-off price.
  • Some businesses provide discounts to retail customers, employees, and stockholders. HNI investors are not eligible for these reductions.
  • For 7 to 10 days, the monies are held in the bank account. This money can’t be used for anything else.

Conclusion

The way affluent individuals invest in initial public offerings is about to alter due to major legislative changes (IPOs). The Reserve Bank of India (RBI) has capped IPO financing by non-banking financial entities at Rs 1 crore starting this month (NBFCs).