Types of Investors in IPO: RII, NII, HNI, QIB & Employee

Key takeaways

IPO investors are classified into categories such as Retail Individual Investors (RII), Non-Institutional Investors (NII) and Qualified Institutional Buyers (QIB).
In general, a retail investor can apply for a maximum of Rs. 2 lakh as per the retail category limit.
Employee reservations are available only when the issuing company provides a separate employee quota in its IPO.
Each investor category will be subject to its respective allotment framework, and there is no assurance of allotment in case of oversubscription.
Check the offer document, financial performance, valuation, risk factors, lot size and category-wise eligibility of the IPO before applying.

Not all of the investors who apply for an IPO fall into one category. SEBI categorises the IPO applicants according to factors like investor type, value of the application, eligibility, etc. Knowing different types of investors in an IPO would help to identify the type of investor you are and how the allotment works.

The categories frequently discussed are Retail Individual Investors (RII), Non-Institutional Investors (NII), Qualified Institutional Buyers (QIB) and eligible employees. There is also HNI, which is quite commonly used in IPO discussions. However, it is not a separate SEBI category but refers to bigger individual applicants within the NII category. Let us try to understand these different types through this blog in a detailed manner.

What are IPO Investor categories?

IPO Investor category refers to the category under which the investor applies for shares in the public offering. Different categories have separate allocation frameworks because an IPO can attract retail investors, large non-institutional applicants and institutional investors.

The most common categories are RII, NII, QIB and Employee, where an employee reservation is provided. The term HNI is widely used as a market term to refer to large individual applicants who are typically classified as NII. Let’s explore the different types of investors in IPO.

Retail Individual Investors (RII)

Retail Individual Investor is defined by SEBI as an individual who applies for securities for a value not exceeding ₹2 lakh. The retail category is limited to individual investors whose application is within this limit. The precise application conditions will always be verified in the offer document of the IPO since specific terms may apply to the issue.

How does retail IPO allotment work?

Applications for IPOs are typically submitted in multiples of the lot size specified. In the event of oversubscription, retail is allocated in accordance with the basis of allotment and not on a first-come, first-served basis.

For instance, if there are 1 lakh shares available for retail and the number of valid applications are for 5 lakh, then the retail category is subscribed 5 times. The actual allotment will be determined by the prescribed rules and available shares.

Example of an RII application

Let's say that an IPO offers shares at a price of ₹500 with a lot size of 20 shares. One lot would be priced at ₹10,000 and investors can apply for just one or multiple lots subject to being within the applicable retail limit.

Non-Institutional Investors (NII)

NII are those eligible applicants that are not classified in the retail category and also do not belong to QIBs. This category may comprise individuals, HUFs, trusts, companies and other eligible applicants who are non-institutional in nature, as per applicable rules.

For applicable mainboard book-built IPOs, the NII portion is divided as follows:

Applications above ₹2 lakh and up to ₹10 lakh: Small NII (sNII)
Applications above ₹10 lakh: Big NII (bNII)

How does NII subscription work?

NII subscription is the demand received from investors who fall in the non-institutional category. Investors can monitor the shares on offer to the NIIs, the number of shares bid for and the ratio of subscription (subscription multiple) during the IPO. If the NII portion is oversubscribed, allotment is based on the NII allocation process and not on a first-come, first-served basis.

Who can apply under NII?

NII is broader than simply large individual investors. The eligible persons who apply above the retail limit may be categorised as NII and other allowed non-institutional applicants like HUFs, trusts and certain entities as per the issue rules.

HNI Investors

HNI, which stands for High Net-worth Individual, is a term used in the market for those making relatively large IPO applications. It is important to note that HNI is generally not a separate category as per SEBI. Large individual applicants generally qualify under the NII definition.

This can be confusing because brokers and financial websites can use the term “HNI” while the formal IPO documents use the term “NII”. Investors should therefore refer to the offer document of the IPO for classification.

HNI IPO application explained with an example

Let us suppose an IPO is priced at ₹500 per share with a lot size of 20 shares. In case of an individual who applies for 1000 shares, the application value would be ₹5 lakh. As the amount of the application is more than the retail limit, the investor normally will be investing under the applicable NII category as opposed to RII.

Why HNI subscription figures are closely watched

NII or HNI subscription data indicates the volume of demand from bigger non-institutional applicants. It can be helpful when examining an IPO in conjunction with financial performance, valuation and risk factors. A high subscription multiple, however, does not ensure listing gains or future returns.

Qualified Institutional Buyers (QIB)

QIBs are institutional investors that fulfill the criteria specified in SEBI regulations. This can include mutual funds, insurance companies, pension funds, eligible foreign portfolio investors and other qualified financial institutions. QIB participation can indicate substantial institutional demand in an IPO. They are allocated based on a different framework than retail and NII investors.

How QIB allotment works

The percentage reserved for QIBs depends on the relevant IPO structure and regulations. Specific allocation provisions can also apply to certain institutional categories, including anchor investors (if applicable). Hence, investors should verify the individual IPO's offer document and not presume that all IPOs have the same allocation percentage.

QIB application explained with an example

Let us consider an eligible mutual fund seeking to invest in an IPO with a QIB portion. It may put forward its bid based on the price, quantity and other terms and conditions mentioned in the issue document. Where the QIB portion is oversubscribed, the final allotment is made in accordance with the relevant institutional allocation framework.

Employee category in IPOs

Some companies set aside a percentage of their IPO shares for qualified employees. This category of employees is not available in all IPOs and available only if the issue allows for the reservation. The offer document includes the eligibility criteria, reserved quantity, application conditions, and employee discount (if applicable).

Employees have to apply through the normal IPO process in accordance with the terms mentioned in the offer document. Any employee discount, if available, will be separate to the reservation.

Who is eligible for the employee category?

Eligibility will be based on the IPO documents and regulations. The offer document will identify which employees are eligible and any applicable conditions or limitations.

RII vs NII vs HNI vs QIB vs Employee

Here is a quick snapshot of how these categories differ from each other:

Investor category	Who are they?	Typical application basis	Key point
RII	Individual retail investors	Within prescribed retail limit	Retail participation
NII	Eligible non-institutional applicants	Above retail limit	Includes large individual applications
HNI	Market term for large applicants	Generally larger NII applications	Not a separate SEBI category
QIB	Eligible institutional investors	Institutional application	Separate institutional framework
Employee	Eligible employees	As permitted by the issue	Available only when reserved

How to choose the right IPO category?

The category you choose is more based on your eligibility and the size of applications than what is more appealing to you. Before applying, check the investment amount, type of investors, the eligibility requirements, the application limit and any reservation available.

It is not advisable that you increase your application just to fit into another category without understanding the additional capital requirement. A larger application will not mean a proportionately larger allotment.

Category-wise subscription data can help investors understand where IPO demand is coming from. For instance, the subscription figures of QIB, NII and retail can give more context than the overall subscription number alone.

Nevertheless, subscription data should not be assumed to be an indication of listing performance or future return. Investors should read it in conjunction with the company's fundamentals, valuation, business model and risks.

Some important things to check before applying for an IPO

Before applying, investors should:

Read the IPO prospectus or offer document.
Understand the company's business model.
Review revenue, profit and financial trends.
Check the price band and valuation.
Understand the use of issue proceeds.
Review promoter and shareholder details.
Read the risk factors.
Check the lot size and minimum application amount.
Confirm the applicable investor category.
Check IPO opening, closing and other important dates.

The IPO's offer document should be treated as the primary source for category eligibility, allocation and issue-specific conditions. Investors can also refer to NSE's official IPO information and offer-document pages.

Conclusion

It is important to understand the types of investors in an IPO, as each category comes with its own set of eligibility criteria and allocation rules. RII denotes retail applications, NII denotes non-institutional applications above the retail limit and QIB denotes qualifying institutional investors.

HNI generally is a market term for larger individual applicants in NII and an employee category is only available if the company offers an employee reservation. Investors should review the offer document of the IPO, understand the category and evaluate if that investment is appropriate for them as per their financial strength, before applying.

FAQs

What are the main types of investors in an IPO?

RII, NII and QIB and issue-specific categories like employees are the main categories, which are typically observed in the IPOs in India. HNI is widely used for larger individual applicants within the NII framework.

What is the difference between RII and NII in an IPO?

RII means an individual investor who is eligible for investment within the specified retail limit. The NII generally applies to eligible applicants whose application is over the retail limit, but who are not QIBs.

Can a retail investor apply under the NII category?

Yes, a retail investor can apply under the NII (Non-Institutional Investor) category by placing an IPO application for more than ₹2,00,000 worth of shares.

Can an employee apply for an IPO under the employee category?

Yes, provided the IPO offers an employee reservation and the applicant is eligible for the same as per the eligibility criteria. The requirements will be listed in the offer document.

Where can I check IPO subscription and allotment details?

IPO subscription details can be checked on the NSE and BSE websites whereas one can check the allotment status on the registrar’s website or through the exchange’s official IPO allotment links.

Types of Investors in IPO