How to Apply for IPO Under HNI Category?

Investing as a high-value applicant versus a retail investor means the IPO application process differs slightly. The category of high net worth individual (HNI) in IPOs is for people who invest larger sums to acquire shares in companies. 

There are unique limits, allotment rules, and different funding methods for HNI investors. Knowing this information will help you submit an application confidently and improve your chances of securing shares in oversubscribed public offerings.

Key Takeaways

• HNI applications in IPOs fall under the Non-Institutional Investor (NII) category for bids above ₹2 Lakh.

• You must choose the NII/HNI investor type, select the appropriate number of lots, and pay via UPI (up to ₹5 lakh) or ASBA through net banking.

• In oversubscribed IPOs, the HNI portion is allotted on a proportionate or lottery basis within the reserved quota.

• Larger applications increase potential gains and losses, and funds remain blocked until allotment or refund.

Understanding IPOs and HNI Investments

An IPO is the process by which a private company offers its shares to the public for the first time, becoming publicly traded. The funds raised can fuel growth and operations and even provide an exit opportunity for early investors. The IPO price is typically set by investment banks based on the company's valuation and market demand, enabling it to tap the capital markets.

The Securities and Exchange Board of India (SEBI) has segmented IPO investors into categories, each with reserved quotas. Among these,High Net-Worth Individuals (HNIs) hold a special position with reserved shares and distinct investment requirements.

Who Qualifies as an HNI?

In India, an HNI is defined as a non-institutional investor who invests more than ₹2,00,000 in an IPO. As per SEBI guidelines, 15% of the shares in an IPO are reserved for Non-Institutional Investors (NII). This is further split as:

• sHNI (₹2 L–₹10 L): 5%

• bHNI (above ₹10 L): 10%

The HNI category includes individuals, Hindu Undivided Families (HUFs), non-resident Indians (NRIs), foreign portfolio investors (FPIs), trusts, and companies. This distinct status allows HNIs to apply with larger bid sizes, offering potential rewards if the stock performs well post-IPO listing. HNIs, including eligible NRIs and other entities in the NII category, must apply using ASBA, which blocks funds in your bank account until allotment or refund.

Steps to Apply for an IPO Under the HNI Category With Angel One 

1. Log into your Angel One account: Access your Angel One account using either the web portal or mobile app.

2. Go to the IPO section: Once logged in, navigate to the IPO section, where you can view ongoing IPOs.

3. Choose your IPO: Select the IPO you wish to apply for from the list available.

4. Select HNI investor type: Ensure that you choose the HNI (High Net-Worth Individual) category before proceeding.

5. Enter number of lots and bid price: Specify the number of lots you want to bid for and enter your bid price.

6. Make your payment:

• If the bid amount is up to ₹5,00,000, you can complete the payment using your registered UPI ID. However, ASBA is standard and safer for HNI due to payment and bid issues.

• For amounts exceeding ₹5,00,000, you’ll need to apply through ASBA (Application Supported by Blocked Amount), depending on your bank and app limits; for higher amounts, apply via ASBA through net banking or by visiting your bank branch.

7. Confirm and submit your application:

• Click on "Apply for IPO" to review your application.

• Once an HNI/NII application is submitted and the mandate is approved, cancellation or modification to reduce the amount may not be permitted as per current SEBI and bank rules, so review your bid carefully.

8. Finalise your bid: Click “Confirm” to place your bid.

9. Wait for allotment confirmation: After the IPO allotment process, you’ll receive confirmation regarding your share allocation.

Key Considerations for HNI IPO Applications

1. Minimum investment requirement

As mentioned, an HNI must invest more than ₹2,00,000. This requirement distinguishes HNIs from Retail Individual Investors (RIIs), who have a lower application size limit of up to ₹2 Lakh per IPO.

2. No discounts on IPO prices

Unlike some other categories, HNIs aren’t eligible for any discount on the issue price. HNIs pay the full IPO price, reflecting their ability to commit larger sums.

3. Oversubscription and allocation methodology

In oversubscription, the NII/HNI portion is allotted on a proportionate basis, and if demand is very high, allotment may be decided by lottery within sub‑categories (sNII, bNII); there is no guarantee of even one lot.

Benefits and Risks of Applying as an HNI 

Investing as an HNI can yield substantial benefits but also comes with certain risks. Here are some key factors to consider.

Benefits

• Priority allocation: With a dedicated quota of 15% for non-institutional investors, HNI investors can participate with larger bids, which may translate into meaningful allotments in some IPOs, depending on subscription levels.

• Profit potential: If the IPO stock appreciates post-listing, HNIs have the potential to secure substantial returns on their investment, thanks to their larger capital outlay.

Risks 

1. No guarantees in oversubscription:While HNIs have priority, they still face competition in heavily oversubscribed IPOs. In such cases, only partial allotments may occur, or, in rare cases, no shares are allotted.

2. Blocked capital: Funds equivalent to the bid amount remain blocked until the allotment, which can limit liquidity for other investments during the IPO processing period.

Different Investor Profiles in IPOs 

1. Retail Individual Investors (RIIs) 

Retail Individual Investors (RIIs) are individual investors who invest up to ₹2,00,000 in an IPO. This category is designed to encourage broad public participation, providing retail investors with an accessible way to invest in public offerings. 

RIIs benefit from a 35% reservation of IPO shares, allowing them a significant portion of shares relative to their investment size. A notable advantage for RIIs is the ability to place bids at the “cut-off” price, where they commit to buying shares at the final issue price set after book-building. 

2. Qualified Institutional Buyers (QIBs)

Qualified Institutional Buyers (QIBs) represent large financial institutions like mutual funds, commercial banks, foreign portfolio investors (FPIs), and public financial institutions. These institutional investors play a pivotal role in the IPO market due to their financial strength and ability to invest in significant quantities. 

The Securities and Exchange Board of India (SEBI) mandates that at least 50% of the total IPO shares be reserved for QIBs, reflecting their importance in stabilising demand and bringing credibility to the IPO. QIBs must be SEBI-registered, as this category involves substantial investment and higher regulatory oversight. 

3. Non-Institutional Investors (NIIs) 

The Non-Institutional Investors (NII) category caters to high-net-worth individuals (HNIs) and other high-value investors such as NRIs, trusts, Hindu Undivided Families (HUFs), and certain companies. This category captures larger investments from individuals and entities that do not qualify as institutional investors but still bring significant capital to the table. 

NIIs have a 15% reservation in IPOs, offering them a dedicated space in high-demand offerings. To qualify as an NII, an investor typically must bid for shares worth over ₹2,00,000. 

Tax Implications for HNI Investors

As an HNI, tax treatment on IPO shares depends on your holding period and the nature of income (capital gains vs dividends). The rates below apply to the HNI category in IPOs, where the securities transaction tax (STT) is paid on the sale of listed equity shares.