HNI IPO Allotment Rules and Regulations with Example
Who are HNI or NII Investors?
We have already discussed HNI investor category in the previous article in brief. In addition to that,
we thought of discussing this category in little depth so to discuss HNI IPO allotment rules and regulations.
Before discussing the same let’s reiterate the same. HNI investors refer to as individual investors who invest more than 2 lacs in IPO bidding and need not register with SEBI for applying for shares.
On the other hand, NII or non-institutional investors can be Indian residents, NRI’s, HUFs’ corporate bodies, companies, trust, scientific institutions, and societies who apply for more than 2lac of shares fall under NII category.
No less than 15% of the offer is reserved for this category.
Above all this category get high oversubscription as the size is small and other individual investor categories try to place bid under this category as chances of allotment is high.
Only one thing distinguishes this category from other category is that investors under this category are not allowed to bid at the cut off price neither can withdraw or revise their bid.
Along with that, there is no lock-in period HNI or NII can sell off their shares on a listing day to book their profit.
Most HNI investors opt for IPO funding from financial institutions as they can take 7 days loan at an interest of 8% to invest large sums of money in the different lots for better chances of allotment.
HNI IPO Allotment Rules and Regulations
Today’s New IPO Listing – How to Choose Best IPO for Investment?
Face Value in IPO – How to Calculate Face Value or Nominal or Par value?
Lot Size in IPO – How to Calculate Lot Size? | Can I Modify IPO Lot Size?
Book Built Issue IPO – Process | Steps | Types | Pros & Cons
Price Band in IPO – How is the Price Band of an IPO Decided?
Undersubscribed IPO – What Happens if the IPO is Undersubscribed?
Listing Gains in IPO | Highest Listing Gain IPO in India
When Can I Sell IPO Shares? Can I Buy & Sell an IPO in the Same Day?
As we have already discussed the main features of HNI /NIIs’ category now let’s focus on allotment rules and regulations put in place by SEBI. For this category, allotment is on the basis of proportionate for the subscription times.
For instance, under NII/HNI category subscription was oversubscribed by 100 times, and let’s says as HNI investors you applied for 1000 shares then you definitely will be allotted 10 shares.
The other way round if you have applied for less number of times issue got over-subscribed then for each lot lottery system will follow therein the allotment of shares is not guaranteed.
For easy allocation of shares in case IPO got oversubscribed then we can use this simple formula:
HNI IPO Allotment* = (Number of Lots Applied / NII Issue Over-subscription) * Shares in one lot
HNI investors have to play very smartly while bidding and need to take a calculative risk or else they will bear losses as most HNI investors take a route of IPO funding which attracts an interest of 8%.
Let’s understand this with a simple example and the investor has to estimate the subscription times basis the current scenario and listing day gain which he is planning to secure so as to recover the cost along with minimal profits.
|NII oversubscription (Expected)||200 Times|
|Lot Size||10 Shares|
|Applied Quantity||5000+ Lots|
|Allotment (Confirm)||25 Lots (if 200x Subscribed)|
|Interest Cost||Rs 100 per share (considering 8% over 7 days)|
|Total Interest Cost||Rs 100 * 25 Lots * 10 Shares per lot = Rs 25,000|
|Listing Gain per Share (Estimated)||Rs 150 per Share|
|Profit||Rs 150 * 25 Lots * 10 Shares per lot = Rs 37500|
|Net Profit (Estimated)||= Rs 37,500 – Rs 25,000 = Rs 12,500|
Not a bad deal if investors can book a profit of Rs 12500 in a span of 7 days after recovering all the costs involved in the bidding.
HNI/NII cannot apply for IPO bidding via UPI option as UPI gateway has a limit of 2 lac transaction amounts.
However, the HNI bidding amount should be more than 2 lacs then only will be categorized under this category.
So, they should either opt for the online or offline ASBA route.
To sum up the above article we can say HNI/NII should bid more lot than the final issue oversubscription figures.
But the biggest challenge is to estimate the over-subscription times under this category.
Most importantly it depends on factors like the issuer company fundamentals, issue size, issue prices, grey market premium, and current market and economic conditions.