How to Activate/Enable the HNI IPO Application?

Last Updated: 4 May 2024

An Initial Public Offering (IPO) is a process through which a private company raises capital by issuing new shares to the public. It allows the company to expand its business operations and offers the public a chance to invest in the company’s growth story. IPOs have different investor categories, like retail individual investors, High Networth Individuals (HNIs), and Qualified Institutional Buyers (QIBs), with separate rules and reservation percentages. This article specifically focuses on HNIs and their application process for IPOs.

What is the HNI Category in IPO?

HNI stands for High Networth Individual. It is a special category under Non-Institutional Investors (NIIs) in an IPO process. As per SEBI guidelines, NIIs have a 15% reservation in the IPO share allocation of a company. The HNI category includes:

• High Networth Individuals
• Companies
• Trusts
• Hindu Undivided Families (HUFs)
• Non-resident Indians (NRIs)>
• Foreign Portfolio Investors (FPIs)

The key differentiation for HNIs is the minimum application amount, which should be INR 2,00,000 or above for IPO bidding. This separates them from retail individual investors, who can bid up to INR 2,00,000.

Rules for HNI Category in IPO

The major rules applicable for the HNI category in IPO bidding are:

• Minimum Application Amount: The minimum bid size should be INR 2,00,000 to be considered an HNI.
• Proportionate Allotment: In case of oversubscription in the NII category, allotment is done proportionately based on the number of shares applied for.
• No Bidding at Cut-off Price: HNIs cannot bid at the cut-off price, which is the upper limit of the price band. They must bid at a fixed price.
• Closing Time: The closing time for NII bids is 4 pm IST on the last day of the offer. The cut-off time applies to HNIs as well.
• Interest on Blocked Amount: The bid amount is blocked similar to retail investors. Savings account holders continue to earn interest on blocked amounts.
• Maximum Bid Size: The maximum bid must not exceed the total NII portion minus the shares reserved for QIBs.
• No Withdrawal of Bids: HNIs cannot withdraw their bids once submitted as per SEBI regulations.

How to Apply for IPO in HNI Category?

HNIs can apply for the IPO through the ASBA process using their net banking facility. Here are the key steps:

1. Login to Netbanking AccountFirst, HNI investors should log in to their net banking account of their bank.
2. Access IPO SectionMost banks have a dedicated IPO/ASBA section under the ‘Services’ tab. Investors can click on this and select ‘Apply for IPO.’
3. Select HNI as a CategoryThe investor should select the option for High Networth Individual (HNI) under the category dropdown.
4. Enter Bid Details Next, enter the IPO name, the number of lots (shares) you wish to apply for, and the bid price per share. Ensure the minimum bid value is 2 lakhs.
5. Submit Application

   Double-check bid details and submit the IPO application. The total bid amount gets blocked in the account.

   Once the IPO is open, the amount will be debited and shares allotted to the HNIs. In case of partial allotment due to oversubscription, only the proportionate amount will be debited.

Types of Investors in the IPO Process

There are three main categories under which investors can participate in an IPO:

• Retail Individual Investors

  This includes resident Indian individuals, HUFs, and NRIs who apply for shares worth up to INR 2,00,000 in an IPO. The reservation percentage is 35% of total IPO shares for this category.

• Non-Institutional InvestorsThe NII category has a 15% reservation in IPO allocation. It includes High Networth Individuals (HNIs), companies, trusts, HUFs, NRIs, and FPIs bidding for above INR 2,00,000.
• Qualified Institutional BuyersQIBs such as mutual funds, insurance companies, banks, alternate investment funds, and foreign portfolio investors account for 50% of reservations in IPO shares. They need to register with SEBI to participate.

HNI Allotment in Oversubscribed IPOs

In case an IPO gets heavily oversubscribed under the NII category, share allotment for HNIs happens proportionately or through a lottery system. The steps are:

• Bidding Closes at 4 pm on Last Day for NIIsHNIs need to submit IPO applications by 4 pm IST on the closing day of the deadline. Applications received post this time are not considered.
• Basis for Allotment DecidedIf there is an oversubscription, the issuer decides to go for proportionate allotment based on the number of shares applied for by each HNI applicant. In some cases, a lottery system can be used.
• Intimation on Proportionate Allotment HNIs are informed on the number of shares they have been finally allotted along with the amount that will be debited from their account. This amount will correspond to the proportion of allotted shares.
• Credit of IPO SharesOnce the Basis of Allotment is finalised, shares are credited to the DEMAT accounts of HNIs who receive the allotment. The number of shares allotted can be nil, partial, or full, depending on their application amount and the level of oversubscription.
• In this way, the allotment mechanism ensures a transparent and fair allocation of shares in case of high demand from HNIs.

Conclusion

HNIs form an integral part of the IPO allocation framework under the NII category. They have specific eligibility criteria, rules for bidding, and share allotment methods in case the IPO gets oversubscribed by large HNI demand. HNIs need to study the mechanisms carefully and bid at optimal prices to improve the chances of IPO share allotment. A good allotment can give substantial listing gains to investors.

Frequently Asked Questions

What is the minimum application amount to be considered an HNI in an IPO?

To qualify under the High Networth Individual (HNI) category in an Initial Public Offering (IPO), an investor needs to put in a minimum application amount of INR 2,00,000 as per the eligibility criteria set by SEBI.

Can HNIs apply for an IPO through the UPI payment method?

No, HNIs cannot use the UPI payment method to apply for an IPO through a broker. They need to submit the Application either physically or via the ASBA process using their net banking facility as per the guidelines.

Do HNIs earn interest on the blocked amount when applying for an IPO?

Yes, HNI investors continue to earn interest on the application amount blocked in their savings bank accounts when applying for an IPO through the ASBA process, similar to retail individual investors.

What happens in case of an oversubscribed IPO under the HNI category

In case of heavy oversubscription in the Non-Institutional Investor portion, share allotment to HNIs happens proportionately based on the number of shares applied. A lottery system can also be used alternatively. 

Can HNIs withdraw their IPO applications once submitted to the registrar?

No, HNI applicants cannot withdraw their IPO bids once submitted according to the SEBI regulations. This is different from retail investors, who can withdraw bids prior to share allotment.