Difference between RII, NII, QIB, and Anchor Investors: A Comprehensive Guide

Last Updated: 28 Oct 2024

Investors applying for shares in an Initial Public Offering (IPO) are categorized depending on their status and investment amount. Retail Individual Investors (RII), Non-institutional Investors (NII), Qualified Institutional Buyers (QIB), and Anchor Investors are the main categories. Potential IPO investors can maximise their allotments by first knowing these categories. This blog will help you understand the fundamental ideas by looking at the variations among these four investor segments in IPOs.

What is RII (Retail Individual Investor)?

Comprising Residential Indians, NRIs, and HUFs (Hindu Undivided Families), the Retail Individual Investor (RII) is one of the most often occurring categories for those seeking shares worth less than Rs 2 lakhs in an IPO. The RII category has some quite remarkable features:

• Investment Limit:

RIIs are allowed to put up to Rs 2 lakhs into an IPO. If you surpass this limit, you are immediately classified as an NII.

• Reservation:

Small investors find the category appealing since at least 35% of the whole IPO offer is set aside for RIIs.

• Allotment Basis:

If any IPO gets oversubscribed, usually a lottery system is used. Regardless of how many shares you apply for, , depending on the lottery, you might only get one lot if the IPO is oversold.

• Cut-off price:

Retail investors can bid at the cut-off price, therefore alleviating them of price fluctuations during bidding.

In an oversubscribed IPO, for example, if you apply for ten lots and another investor applies for one lot, both may end up with only one lot each.

What is NII (Non-Institutional Investor)?

Non-institutional investors (NII) include residential Indian persons, NRIs, HUFs, corporate bodies, and others seeking shares valued more than Rs 2 lakhs. Though they lack a cap on their investment level unlike RIIs, NIIs cannot bid at the cut-off price yet. Important differences among the NII category consist in:

• Investment Amount:

To qualify in this category NIIs have to apply for shares valued more than Rs 2 lakhs.

• Reservation:

NIIs account for at least 15% of the whole IPO offer.

• No Cut-off price:

Unlike RIIs, NIIs are not able to bid at the cut-off pricing. They have to indicate their bid price.

• Subcategories:

Small NII (sNII) for bids between Rs 2 lakhs and Rs 10 lakhs and Big NII (bNII) for bids more than Rs 10 lakhs.

What is QIB (Qualified Institutional Buyer)?

Qualified Institutional Buyers (QIB) include state financial agencies, mutual funds, and major financial institutions including banks. These corporations play a significant role in the market, and their involvement in an IPO helps boost market confidence.. QIB’s full form is Qualified Institutional Buyer. Important characteristics of the QIB class consist in:

Reservation:

QIBs occupy half of the whole IPO offer.

Eligibility:

Applications falling into this category only come from SEBI-registered institutions.

Allotment:

Unlike RIIs, QIBs get allocation proportionately, therefore guaranteeing they have a share in oversubscribed IPOs.

No Withdrawal:

QIBs cannot withdraw their bids after the IPO shuts.

No Cut-off price:

Like NIIs, QIBs are not permitted to bid at the cut-off price. They have to name their bid.

Considered as sophisticated investors, QIBs’ choices on investments sometimes affect small retail investors.

Who is Anchor Investor?

A unique subset of QIBs, Anchor Investors promise to buy IPO shares prior to public release. This promotes retail and institutional investors to take part in the IPO, therefore generating a good buzz around it. Usually, Anchor Investors has these traits:

• Minimum Investment:

An Anchor Investor should apply for minimum Rs 10 crores.

• Reservation:

Anchor Investors could reserve up to 60% of the QIB share.

• Allotment Before IPO:

Made at a set price, Anchor Investors receive shares one day prior to public subscription opening.

• Cut-off price:

Anchor Investors cannot bid at the cut-off price, much as QIBs can.

• Confidence:

What is the Difference Between RII, NII, QIB and Anchor Investors

 

Category	Eligibility	Investment Limit	Reservation	Allotment Basis	Cut-Off Price Bidding
RII	Resident Indians, NRIs, HUFs	Up to Rs 2 lakhs	35%	Lottery if oversubscribed	Allowed
NII	Individuals and entities applying for over Rs 2 lakhs	Over Rs 2 lakhs	15%	Proportionate	Not Allowed
QIB	Financial institutions like banks, mutual funds, etc.	No limit	50%	Proportionate	Not Allowed
Anchor Investor	QIBs making an application worth Rs 10 crores or more	Rs 10 crores minimum	60% of QIB portion	Allotment before IPO	Not Allowed

Conclusion

Anyone hoping to invest in an IPO must first understand the variations among RII, NII, QIB, and Anchor Investors. Regarding investment restrictions, allocation techniques, and bidding procedures, every category has its own set of guidelines. Knowing where you fit in the IPO ecosystem will help you maximize your chances of getting an allocation and making a profitable investment regardless of your kind of investment—retail or large financial institution.

Frequently Asked Questions

What is the full form of QIB?

Qualified Institutional Buyer, the full form of QIB, is a representation of major financial institutions engaged in the market.

RII and NII differ in what exactly?

The investment restriction distinguishes RII from NII most importantly. Whereas NIIs have to invest more than Rs 2 lakhs, RIIs can invest up to Rs 2 lakhs. RIIs can also bid at the cut-off price; NIIs cannot.

Eligibility to apply as Anchor Investor?

Qualified institutional buyers (QIBs), Anchor Investors apply for shares valued at least Rs 10 crores or more prior to the IPO public opening. Their involvement is absolutely vital in increasing investor trust.

What is the allotment process for RII?

Should the IPO be oversubscribed, allocation in the RII category usually follows a lottery pattern. Every candidate has an equal opportunity of getting at least one lot of shares.

Are QIB bids able to be withdrawn from an IPO?

No, QIBs are not allowed to withdraw their bids as per SEBI rules once the IPO subscription period concludes.