How many shares are allocated for Retail Investors in an IPO?
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- Updated On:31-Aug-2021
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Short Answer
An IPO is divided into 3 categories of investors which are the QIB (Qualified Institutional Buyers), NII (Non-Institutional Investors), and RII (Retail Individual Investors). The allocation for each category is different. The allocation is highest for the QIB category at a minimum of 50% as they have greater financial knowledge and risk appetite and the allocation for Retail Investors is a minimum of 35% and for the NII category, a minimum of 15% is reserved.
Detailed Answer
What's an IPO?
An IPO is a process through which a private company gets itself listed on the Stock Exchanges such as NSE (National Stock Exchange) & BSE (Bombay Stock Exchange) by selling some of its Equity shares to the investors and raising money from it. IPO is usually done when the company wants to raise some additional capital to meet its Short and Long term goals and for the expansion of the Business.
What is the distribution for an IPO?
According to SEBI (Securities and Exchange Board of India), an IPO needs to be subscribed to at least 90% in order to proceed further with the allotment process.
An IPO is divided into 3 categories for 3 different types of investors to bid from. They are-
QIB-
The QIB or Qualified Individual Buyers are investors which include, Mutual Funds, Banks, Foreign Investors, Financial Institutions, and other Large Institutions that have the required Financial expertise and fulfill the criteria for being a financial adviser. QIB’s are typically large institutions Firms and not individual hence the majority part of an IPO is reserved for them as they have higher expertise and better Risk taking capacity. A minimum of 50% is allocated for the QIB category.
NII
NII or the Non-Institutional Individuals are investors who have higher investing power than the retail investors. This category of investors does not require any Financial Certifications for investing as the QIB category. The minimum amount of investment for the NII category is 2 Lakh. Any retail investor can apply from the NII category if they are looking to bid for more than 2 Lakh can apply from the NII category. A minimum of 15% of the total IPO is reserved for the NII category.
RII
RII or the Retail Individual Investor category is the most common Category of any IPO because most individual investors fall under this category and apply from this category. One can bid for a minimum of 1 Lot under the RII category and a Maximum of 13-14 Lots or up to 2 Lakh rupees, whichever is lower. Any individual who is willing to bid for more than 2 Lakh has to apply in the NII category. In the RII category, a minimum of 35% is reserved.
How much is the Retail allocation of an IPO?
As seen above, a minimum of 35% is reserved for the Retail Investors in any IPO. This rate is not fixed and is changed according to the company. If any company falls under the category of “Risky”, due to certain factors such as continuous Loss posted by the company for a couple of quarters or for other reasons, in these cases the allotment for the Retail Category is reduced to 10%, and the QIB allocation is increased to 75%. For example, if a company "Q" is selling 1000 shares through an IPO then the allocation for the Retail Investors would be 35% which turns out to be 350 shares.
Allocation of Shares
To sum it up, generally, the allocation of shares for the Retail Investors (RII) is 35% but in some cases, the overall percentage is reduced to 10% base on some norms of SEBI.
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Discussion (0)
The minimum and a maximum number of shares are defined in Lots in an IPO. The minimum number of Lots that a retail investor can apply in the Retail Segment (RII) is 1 Lot and the maximum number of Lots that can be applied should be less than 2 Lakh Rupees. On the other hand, if one wants to apply for more than 2 Lakh rupees then they can apply in the NII (Non-Institutional Investor) category where the minimum amount for investment is 2 lakhs and the maximum amount is not capped.
Buying the shares of companies that are not listed is an easy task these days, as there are many online platforms that allow retail investors to own shares of unlisted shares or Pre-IPO shares. Buying Pre-IPO shares have some advantages as well as disadvantages, it is discussed in detail below.
One97 Communications, the parent company of Paytm came up with the largest IPO in Indian history but failed to perform well. Firstly the IPO was too big for the retail investors to digest. Then the valuations were extremely high which led to the HNIs and Institutions avoiding the issue. All together the overhype in social media led to massive losses for the retail investors as the stock fell almost 40% in two trading sessions.
If you are a Zerodha customer, you can apply for IPO online through Zerodha Console (Zerodha Back-office). The process for applying an IPO process has been explained in detail above. Here are few other answers to important queries that you may want to learn.
IPO is alloted by following the pre-defined rule laid down by the SEBI. When an IPO is oversubscribed it gets allocated by considering the minimum lot size. If still not solved, then a computerized draw of lots is conducted.
Yes!, one can apply 1 Lot from different Demat accounts but they have to make sure that the other Demat account should not be mapped under their name or PAN Card. If one applies through 2 or more Demat accounts that are mapped under their name then all of the applications will get rejected.
Minimum order quantity stands for the minimum amount of shares that have to be purchased to secure an IPO investment. However, an investor purchasing bare minimum shares in a package are coined as market lot size.
If a lot of investors show their interest in an IPO, then it is allocated through lottery and in case of a small number of potential investors SEBI defined norms are followed.
ASBA stands for Applications Supported by Blocked Amount, which is an alternative payment method to apply for an IPO. Let's go through some more details on it.
Yes, an individual investor can apply through a non-institutional category of an IPO given that they have enough influx to bid in the category.