How many shares are allocated for Retail Investors in an IPO?

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.

Tagged With: retail investorsshares allocationsharesipo
Categories: IPO Basics
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Related FAQs

What is Basis of Allocation or Basis of Allotment in IPO?

It is the document issued by the owner of the IPO for share allocated as per the regulatory guidelines in an IPO. This contains all the crucial details about the Initial Public Offering.

What is the formula for shares allotment in an IPO?

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.

Can we sell IPO shares immediately?

In an Initial Public Offering (IPO) a company sells its shares to investors in order to raise money. As a retail investor, you can apply for an IPO from the primary market in order to get the shares offered by the company. Once the shares get listed on the secondary market, you can sell your shares provided you have received an allotment in the primary issue.

Does applying in an IPO guarantee me to get certain amount of shares?

No, applying for an IPO does not guarantee you nay shares that would be allocated to you. Simply, applying is no surety to getting the shares as well.

Does IPO get allocated to people who apply first?

No, IPO allotment doesn't work like that. It is not dependent on who applied first, rather it is based on the total issue demand. There isn't a formula but a set process based on which the shares get allotted to different category of applicants.

Is IPO investing good for new investors?

IPOs can be a good option for beginners as they provide an opportunity to get the shares of good companies at an attractive price. Though IPOs can provide good listing gains and quick profits, good companies can help you to create massive wealth in the long term.

How many IPO applications can I submit through online net banking from one bank account?

There are about 5 IPO applications that can submit through online net banking from one bank account. However, the number can change immensely from one bank to another.

How many days an IPO remain open for public?

IPO is the primary stage where the company goes public and starts gaining investments from people. It is essential for the company to manage the details properly. For Public, IPO should remain open for at least 6 days and for maximum 10 days.

Can a retail investor buy Government Securities?

Government securities include both T-Bills (Treasury Bills) and Government bonds which are both short and long-term instruments issued by the Central & State governments for various purposes. Retail investors are allowed to invest in G-Secs provided by the RBI. One can buy them directly from the Stock exchanges in a non-competitive method.

What is Market Lot Size and Minimum Order Quantity for an IPO?

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.