HNI IPO Application Guide (NII Allotment Rules and Benefits)

Published on Wednesday, August 4, 2021 by Chittorgarh.com Team | Modified on Monday, November 8, 2021

A high Net-worth Individual (HNI) is a retail investor who bids for more than Rs 200,000 equity shares in an IPO. It is an investor category defined in IPOs in India. HNI IPO applications are part of the Non-Institutional Investors (NII) portion.

HNI (High Net worth Investors) & NII (Non-Institutional Investors) can be considered the same. As per the SEBI rule, the issuing company should reserve a minimum of 15% of the IPO for the NII category.

Applying for IPO shares in the HNI category offers an opportunity to grab shares worth more than Rs 2 lakhs. It also increases the chance of allotment for retail investors. With easy IPO funding available in the market, an investor can make a quick and lot of money in just seven days. Most HNI investors take a loan worth 100’s of crores for each IPO.

HNI IPO Meaning

To invest in the HNI category of an IPO, you need to bid for more than 2 lakh rupees of Equity shares. You can bid for the HNI IPO application only through ASBA using the Net banking facility or by submitting the physical IPO application form. HNI’s cannot apply using the UPI-based IPO application offered by most discount stock brokers like Zerodha.

IPO HNI Category

HNI Category in an IPO is where you need to apply for more than Rs 2 lakh. HNI IPO application is part of (Non-Institutional Investor) NII reserved portion of IPO for allotment. As per IPO regulations in India, a minimum of 15% of the public issue is reserved for NII investors.

HNI IPO Rules

• The minimum IPO application amount for HNI is Rs 2 lakhs.
• HNI Allotment is on a proportionate basis or lottery system based on your application and NII over-subscription.
• IPO shares are allotted within six working days from the Bid/Offer Closing Date.
• The cut-off time to apply for IPO shares in the NII category is 4 PM IST on the issue closing date.
• Similar to retail applications, the banks block the bid amount for HNIs. If applied from a savings bank account, you will continue getting the interest earnings on the blocked amount.
• Maximum Bid by NII is the number of Equity Shares in the given lots not exceeding the size of the Offer (excluding the QIB Portion)
• HNI/NII category also includes NRIs applying for more than Rs 200,000.
• HNIs are not entitled to Bid at the Cut-off Price. They have to bid at a fixed price in the issue price range.
• Not less than 15% of the Offer is reserved for Non-Institutional Portion.
• NII bids are considered for allotment only when they are received at or above the Offer Price.

Difference between HNI and NII

IPO applications by HNI investors are considered part of the Non-Institutional Bidders (NII) category. Along with HNI investors, the NII reserved portion also includes NRIs, HUFs, Companies, FPIs, and Trusts.

The HNI and NII both represent the same NII category in an IPO for the retail individual investors.

Difference between HNI and Retail

Both High Net-worth Individuals (HNI) and Retail Individual Investors (RII) are individual people who apply for an IPO under two different reserved categories i.e. Retail and NII.

The Retail Portion is reserved for individuals who apply for not more than Rs 200,000 in an IPO. The HNI’s are individuals who apply for more than Rs 200,000. The HNI bids are considered under the (Non-Institutional Investor) NII portion.

IPO HNI Limit

The IPO HNI category has the following limitations:

• The HNI IPO application cannot be revised or withdrawn once placed.
• HNI investors cannot use cut-off price while applying for an IPO. They have to provide the exact price to buy the IPO shares.
• The HNI IPO allotment is done either proportionately or by a lottery system. The decision is made based on NII over-subscription and the number of lots applied by the investor. For example, if IPO subscribed 100x in the NII category and an investor applied for 90 lots, the allotment will be done by lottery. If the HNI investor applied for 100 lots, he will get one lot for sure.
• Many HNI takes funding or loan on interest to apply for an IPO. It makes most good IPOs subscribe heavily under this category.

How HNI IPO allotment is done?

The HNI category IPO allotment process has two parts. For HNI investors who have:

1. Applied for more lots than the issue oversubscribed, the shares are allocated proportionately. 
2. Applied for fewer lots than the number of times issue oversubscribed, the allotment is done % wise in comparison to total subscription. The allotment is not guaranteed in such cases as its done by lottery for 1 lot.

Example

* Category in the above table is a group of applications based on the shares applied in lots by investors. Unlike the RII with 13 categories (due to 13 lots); NII has a wide range of categories. Only a few are shown on the basis of the allotment document. That’s the reason the Basis of allotment document says ‘The category-wise details of the Basis of Allotment are as under (Sample):‘

In the above sample allotment

Shares Allotted = (360 Lots Applied / 34.25 Times NII Oversubscription) * 195 Shares per lot = 2050

HNI IPO Funding

HNI IPO Funding is a short-term loan offered by financial institutions to invest in IPO. These are 7-day loans with an interest rate of around 8% per annum. Good IPOs receive thousands of crore rupees funding from HNI investors.

HNI uses HNI Funding Cost Calculator to estimate the gains from the IPO.

HNI IPO Allotment Calculator

The HNI IPO Allotment Calculator shows you how many shares you will get allotted.

HNI IPO Allotment* = (Number of Lots Applied / NII Issue Over-subscription) * Shares in one lot

* Note that this formula is not applicable if the numbers of lots applied are fewer than the oversubscription in the NII category. In this case, allotment is done by lottery for 1 lot of shares.

Example:

• Number of Lots Applied: 100
• NII Oversubscription: 25 times
• Shares in 1 lot: 15
• HNI IPO Allotment = (100/25)*15 = 60 Shares

HNI Funding Cost Calculator

An HNI IPO Allotment Calculator tells the upfront cost of each share allocated to HNIs based on Issue Price, Oversubscription, and IPO funding interest rate.

HNI IPO funding cost calculation formula:

IPO Funding Cost = IPO Price * NII Over-Subscription * (Interest Rate/100) * (7/365 days)

Check HNI Funding Cost Calculator for Zomato IPO.

Apply IPO in HNI Category

A retail investor can apply for IPO shares in the HNI category using the online ASBA IPO Application facility offered by the net-banking website or app of the bank. HNIs cannot use UPI-based IPO applications to apply in the NII category as an HNI investor.

The process of applying for IPO shares as HNI is similar to retail ASBA IPO application using net-banking except; the application amount should be more than Rs 200,000 and you have to choose a specific price at which you would like to buy IPO shares. The cut-off price option is not available to HNIs.

Steps to apply IPO in the HNI category

1. Log in to a net-banking website or app.
2. Go to the IPO section.
3. Select the IPO.
4. Fill IPO application form with details.
5. Choose investor category as Non-Institutional.
6. Submit the application form.
7. Go to the IPO Order Book page to check the status of the application.

Note: The banks or brokers submit the IPO applications to the exchange between 10 AM to 5 PM. The investor gets a unique application number from the stock exchange. It is a confirmation of the application accepted.

HNI IPO Benefits (Advantages)

• Opportunity to buy shares worth more than Rs 2 Lakh.
• Increased chances of allotment if you can manage large funds for 7 to 10 days.
• The funds remain in your bank account and continue earning saving bank interest.
• HNIs can sell allocated IPO shares in the market on listing day. There is no lock-in period.
• IPO funding is available from almost all banks and NBFCs at a reasonable interest rate of 7 to 10% per annum.
• HNI’s doesn’t have to register to SEBI or exchanges, unlike QIB.
• HNI NRI’s are also eligible to apply in IPO similar to resident Indians.

HNI IPO Risks (Disadvantages)

• HNI investors cannot revise or withdraw the bid one placed.
• The NII category for IPO with high demand usually gets heavily oversubscribed for HNI (300 to 1000 times), reducing the chances of allotment.
• There is no guarantee of allotment if the number of lots applied is less than the number of times the issue is oversubscribed in the NII category. In this case, a lottery is drawn for the allotment of one lot.
• Most HNIs take IPO funding on interest. In case IPO doesn’t get listed well, the investor may incur a huge loss.
• HNI investors cannot bid on cut-off price.
• Some companies offer a discount to retail, employee, and shareholders. These discounts are not available to HNI investors.
• The funds remain blocked in the bank account for 7 to 10 days. These funds can’t be used for any other purposes.

IPO Investor Categories

IPOs in India have five investor categories. The issuer company reserves a portion of the public offerings in each category. The minimum requirement is retail portion is not less than 35%, the QIB portion is not more than 50%, and the NII portion is not less than 15% of the Offer.

1. Qualified institutional buyers (QIB)

   The QIB reserved category includes public financial institutions, commercial banks, mutual funds, FPIs, VCFs, AIFs, FVCIs, insurance companies, provident funds, pension funds, National Investment Fund, and NBFCs. Up to 50% of the IPO are made available for allocation to QIB Bidders.

   Anchor Investor Portion

   A part of the QIB Portion is allocated by the company to Anchor Investors on a discretionary basis. The Anchor investors could be any individual, company, or Mutual Funds. A 33% of Anchor Investor Portion is reserved for Mutual Funds.

2. Retail Individual Investors (RII)

   Individual investors applying for less than Rs 200,000 in an IPO are RIIs. The RII category also includes HUFs applying through their Karta and Eligible NRIs. Minimum 35% of the main-board public issue is reserved for retail.

3. Employees

   Eligible employees of the company. It is an optional category and is used only by a few companies.

4. Shareholders

   Eligible shareholders of the parent company. It is an optional category and is used only by a few companies.

5. Non-Institutional Investors (NII)

   Non-Institutional Investors are the investors who bid for shares for more than Rs 200,000 in an IPO and are not QIBs. It includes Resident Indian individuals, Eligible NRIs, HUFs, companies, corporate bodies, scientific institutions, societies, family offices, trusts, and FPIs who are individuals, corporate bodies, and family offices.