How to apply for IPO under the HNI category?

Like Twitter and Facebook, Dalal Street has something trending happening time and again. And in case you’re wondering what it is, it’s the “IPOs”! 

Though most of us are aware of what an Initial Public Offering is, we fail to look beyond that. While it is a very huge process containing numerous intricate details, we have brought you a special part of it that will be useful when you subscribe for future IPOs. 

Today, we will be looking at the HNI category of investors in detail in this blog. So, let’s begin!

IPO and its Categories

Initial Public Offering refers to the process where various companies come forward and offer their shares to the public for subscription. They do this to raise capital, which will be used for expansion or to fulfil other working capital-based needs. 

As an investor, you can subscribe to these shares under three different categories. They are as follows:

1. Retail investors
2. HNI or High Net Worth Individuals
3. QIB or Qualified Institutional Buyers

Now, let’s look into all three of them in detail and how they differ from each other. 

Retail Investors (RII) 

Individuals, HUF and NRI’s opt for this category of investment. Their investment usually is under ₹ two lakhs. About 35% of any share allotment goes to them. Further, they are eligible to bid for the cut-off price. However, the allotment of shares depends upon whether or not the shares are oversubscribed. 

Qualified Institutional Buyer (QIB) 

This is not a popular mode of investment and is used only by financial institutions, commercial banks, foreign portfolio investors, and mutual fund investors. As you can see, this investment type is not for the common public. About 50% of the issue is restricted to QIB investors. They can withdraw their bids even after the close of the IPO. 

High Net Individuals (HNI) 

High Net-worth Individuals are allotted about 15% of the entire issue. They can bid nothing less than ₹2 lakhs, and most of them invest in crores. While they are not allowed to bid at the cutoff price, they are also not allowed to withdraw their bids until the day of allotment. In case of oversubscription, allotment is made either proportionately or using a lottery.

As an individual investor, you might be confused as to which route to take and which will best suit you.

Hence, the table below will help you in understanding the key differences between both -

*Note that an individual cannot subscribe to both the HNI and RII categories while applying for an IPO.

Key Details of the HNI Category

Let's say Mr X subscribed to the shares of XYZ company. He applied for 300 shares of the company. Now, there are two cases in which the allotment can be made. 

1st case: Here, let’s say the shares are undersubscribed. Then, under this scenario, the investor will get whatever he has applied for. That is the 300 shares. 

2nd case: Say the shares are oversubscribed 300 times. Then, in that case, the investor will be allotted proportionately, which in this case is one share. 

But then, as many HNI applicants choose shares worth lakhs of rupees, they get a loan from their respective brokers to finance the same. This is done while keeping in mind that an oversubscription will invite a proportional division of allotment, and by applying for more than what you want, you will finally land up to the number you are expecting. However, it is important to remember that when you borrow, you will be paying interest on the amount as well.

As we know, IPOs are mostly looking forward to their listing gains, and the HNI investors are no different. However, it depends on various factors. As they spend a huge amount and also pay interest and other charges, they need a good number to offset the charges. For instance, though HUDCO saw a good number on premium, the HNI investors saw a huge loss. On the other hand, phenomenal profits were made on D-mart shares. 

Hence, the choice to opt for HNI or RII must be solely based on the nature of the shares coming for the IPO. That’s why most HNI investors wait until the last day to subscribe to the shares. So that they can obtain a rough idea of what the subscription will be like and whether they will make a profit or not. 

How to Apply as an HNI?

Some of the steps to apply for the shares under the HNI category are as follows. 

• To apply for shares under the HNI category, you can simply log into your net banking site and click on the IPO column.
• You will be taken to a page where details regarding the various IPOs are provided. You can take a look at them. 
• Once you are done viewing the various details, you can click on the IPO application form option to go to the form and start filing. 
• Now, fill in the required details, such as the number of lots, price, account number, etc. and select the HNI category without fail. After which you can submit it.  
• There you go! You have now applied! 

The application money will be released from your account only after allotment. After the allotment of the shares, the money will either be debited partially or fully or will be refunded. When the shares are not fully subscribed, you will be allotted what you asked for, and the entire amount for the same will be deducted. On the other hand, in the case of oversubscription, you will be allotted proportionately, and the application money will be deducted accordingly, or it will be refunded entirely.  

The Bottom Line

So, making a wise choice when it comes to IPO is extremely important. And that way, you will be the one making profits and not your brokers.