SEBI regulations related to IPO do not contain the term HNI. The term “High Net Worth Individuals” (HNIs) is nowhere mentioned in the SEBI (Issue of Capital and Disclosure Requirements) Regulations related to IPO investment.
A High Net Worth Individual (HNI) in financial terms refers to an individual investor with an investible corpus of more than Rs. 2 crores. This classification is intended to distinguish them from other small investors.
HNIs have diverse income streams, including investments, multiple businesses, and properties. They possess an understanding of more sophisticated financial strategies and have the ability to evaluate investment proposals.
In the article, you will discover how the term HNI is utilized in the context of IPOs, its significance, and the procedure for applying for an IPO under the HNI category.
Who Qualifies for HNI: Rules for HNI IPO
HNI falls under the Non-Institutional Investors (NIIs) investor category. The term NIIs is used by SEBI to distinguish investors with a single bid of more than Rs. 2 Lakhs.
As per SEBI, NIIs can be Individuals, NRIs, HUFs, FPIs, Trusts and Companies.
In short, NIIs as a category are investors with higher investing capacity. So one can take HNI as an individual who forms a part of the NII portion of the IPO.
HNIs pertain to retail investors who make high-capital investments.
According to SEBI regulations, the IPO issuer company must allocate a minimum of 15% of the Issue Size or the number of shares to the NII category.
There isn’t a distinct application process for the HNI category in IPOs. Instead, any bid exceeding Rs. 2 Lakhs is automatically classified as HNI. For example, if you are applying for Pyramid Technoplast Ltd IPO, it will show the investor category – retail or HNI as below.
NOTE – If you apply for less than Rs. 2 Lakh then your IPO application will be taken under the retail category.
If your bid is for more than Rs. 2 Lakhs, your IPO application is taken under the NII category.
The window for IPO applications under the HNI category closes at 4 PM on the last day of the bidding period.
SEBI Rules for NIIs (HNIs) in IPO
- Minimum application size is Rs. 2 Lakh or more
- NIIs category also includes NRIs, HUF, Corporates, Trust
- HNIs cannot bid at the cut-off price. You need to bid at any price in between the price range.
- HNIs cannot use the UPI method for applying in an IPO
- Cut-off time for NII category applications is 4 pm IST
- The maximum bid for NII must not exceed the IPO issue size of the offer (excluding the QIB portion)
- As HNI, you are not allowed to withdraw or lower the bid price
- HNI allotment is done on a proportionate or lottery basis
According to SEBI IPO regulations, people applying as HNIs cannot cancel, delete or lower their IPO bids.
You are only allowed to modify the bid to increase its size. For example, if you have applied for shares worth Rs. 5 then you can modify your IPO application by increasing the amount to Rs. 8 Lakhs but you can’t reduce it to Rs. 3 Lakhs.
So is there any benefit for applying as HNI? Let’s find out.
Benefits of HNI in IPO
The NII category has a lesser number of total applicants as compared to the retail category which means the probability of IPO allotment is more. But remember the overall share allocation might be only 15% of the Issue size.
You have the opportunity to buy shares worth more than Rs 2 Lakh when applying as an HNI. Retail investors are capped at Rs. 2 Lakhs.
As HNI, IPO funding is available from a few banks and NBFCs at a reasonable interest rate of 7 to 10%.
Few banks and NBFCs giving IPO funding –
- Kotak Bank
- Bajaj Finserv
- Bank of Baroda
But then it’s a lottery, you are dependent on allotment and bumper listing. If that doesn’t happen then you need to pay interest.
Disadvantages of HNI in IPO
You as HNI investors can’t revise or withdraw the bid. Heavily oversubscribed IPOs reduce the chances of allotment.
If you have availed IPO funding and the IPO doesn’t get listed at a premium or at worst lists at a discount then you will incur losses and also pay the interest.
Lastly, as an HNI investor, you cannot bid on the cut-off price.
b-HNI & s-HNI Meaning in IPO
The NIIs (HNI) category is further subdivided into 2 categories.
s-HNI category – the smaller HNIs with IPO investment amounts between Rs. 2 Lakhs to Rs.10 Lakhs.
s-HNI is shown in 2.2 above. They are marked as “Non-Institutional Investors (Bid amount of more than Two Lakhs Rupees up to Ten Lakh Rupees).
I mean, their IPO subscription and allotment are also shown separately.
b-HNI category – is the Big HNI category of investors making IPO investments of over Rs. 10 Lakhs.
b-HNI is shown in 2.1 above. They are marked as “Non-Institutional Investors (Bid amount of more than Ten Lakh Rupees).
There is no upper IPO investment limit for b-HNI investors.
b-HNI Vs s-HNI
|Rs. 2 to 10 Lakhs
|Rs. 10 Lakhs and over
|Up to Rs. 10 Lakhs
|No upper Limit
|Individuals, NRIs, HUFs, FPIs, Trusts and Companies
|Individuals, NRIs, HUFs, FPIs, Trusts and Companies
|Pro-rata or Lottery
|Pro-rata or Lottery
The IPO subscription status on NSE & BSE shows s-HNI and the b-HNI category separately. But consolidates the HNI investment under the common head NIIs.
Note – that the distinction between s-HNI and b-HNI is not regulated by SEBI and there’s no strict threshold for defining these categories.
NSE, BSE, banks and brokerage firms have found out a mechanism to differentiate various investor classes as per their own criteria and for the smooth conduct of the IPO process.
In general, idea is that –
- Retail Investors – Less than Rs. 2 Lakh application
- s-HNIs Investors – Rs. 2 to 10 Lakh IPO application
- b-HNI investors who apply for larger amounts (more than 10 Lakhs) in IPOs
How to Apply for IPO in HNI Category
HNIs can’t use the UPI method to invest in IPOs. If you are applying for IPO shares with over Rs. 2 Lakh (under HNI category) then you need to fill out the ASBA (Application Supporting the Blocked Amount) or go for a physical application.
Physical application requires paperwork which is time-consuming. You also need to transfer funds to your stock broker till the allotment is finalized.
ASBA on the other hand is online, you can apply using your net banking, is hassle free and you receive interest on the money lying in your account.
Steps to apply for an IPO in the HNI category
- log in to your net banking
- Find ‘IPO Application’
- Select the IPO and the HNI category (bid amount more than Rs. 2 Lakh)
- Fill in the Bid price and the number of shares
- Review and submit the IPO application
Remember as an HNI investor you can’t cancel, or withdraw your IPO application and also can’t bid at the cut-off price.
Here is a video on – How to Apply IPOin HNI Category SBI. Select HNI (application more than Rs. 2 Lakhs) when choosing the category.
How to Apply for HNI IPO in Zerodha
You can’t apply under the HNI category in Zerodha Kite as such.
You need to apply via the ASBA route if you want to invest more than Rs. 2 Lakhs under the HNI category.
If you want IPO shares to be credited in your Zerodha account then you need to register your demat account with your net banking for IPO application.
IPO allotted share will reflect in your Zerodha account when your Zerodha demat account is mapped to net banking.
Registering your demat account is a one-time process and takes 5 minutes.
Steps to register Zerodha demat account with net banking
- Log in to the net banking SBI, ICICI, or HDFC
- Select the IPO investment section
- Choose “Add beneficiary”, “New User” or “Applicant Registration”
- Pick your category as HNI
- Next, you need to choose CDSL as a depository
- Fill in your Zerodha Demat Account information
- Depository Name: ZERODHA SECURITIES PRIVATE LIMITED
- And your DP ID FOR IPO application (12081600XXXXXXXX)
- Review and Confirm the registration
Here’s a video showing IPO registration for Yes Bak net banking. The process is more or less the same for other banks also.
The s-HNI category comprises smaller HNIs investing between Rs. 2 lakhs and Rs. 10 lakhs in IPOs. On the other hand, b-HNI category includes big HNIs investing over Rs. 10 lakhs. These distinctions are used by various entities, not strictly regulated by SEBI.
To be classified as an HNI in an IPO, an individual needs to invest more than Rs. 2 lakhs in the IPO.
No, HNIs are not allowed to use the UPI method for applying in IPOs. They need to opt for the ASBA (Application Supported by Blocked Amount) route or physical application.
No, HNI investors cannot revise, withdraw, or lower their bids after applying for an IPO.
They can only increase the bid size if needed.
The allotment of IPO shares for HNIs is done on a proportionate or lottery basis. This means that if an IPO is oversubscribed, allotment will be proportional, and if not, HNIs will receive a full allocation.
Applying as an HNI in an IPO may offer a higher probability of allotment due to fewer applicants in the NII category. Additionally, HNIs have the opportunity to invest more than Rs. 2 lakhs and can avail IPO funding from banks and NBFCs at reasonable interest rates.
No, an individual cannot apply for an IPO under both the HNI and retail categories. Such an application is likely to be rejected.
Yes, if you apply for more than Rs. 2 Lakh worth of shares in an IPO, your application will automatically be taken under the HNI category.
It depends on the IPO subscription levels. If the IPO is oversubscribed, then allotment will be proportional or by lottery. If the IPO is not over-subscribed, then you as HNI will receive a full allocation.