4 Different Types of Investors In IPO

When a company issues shares to the public for the first time through an Initial Public Offering (IPO), investor participation is structured under defined regulatory categories. In India, the Securities and Exchange Board of India (SEBI) classifies IPO applicants into distinct investor categories to ensure orderly allocation and broad-based market participation. Each category operates under specific eligibility thresholds, reservation norms, and allotment mechanisms, which together govern how IPO applications are processed under the SEBI regulatory framework.

Public issues in India are structured to allow participation from different investor groups, each defined under SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations. These categories determine eligibility limits, reservation percentages, and allotment mechanisms during an IPO.
 

1. Retail Individual Investors (RIIs)

Retail Individual Investors represent the retail investors in IPOs who apply within the prescribed monetary limit set by SEBI.

Retail Individual Investors are non-institutional applicants whose total application amount does not exceed ₹2,00,000 in a single IPO.

Who qualifies as an RII

• Resident individual investors

• Non-Resident Indians (NRIs)

• Hindu Undivided Families (HUFs), applying through the Karta

Key characteristics

• Application limit: Up to ₹2,00,000 per IPO

• Reservation: Minimum 35% of the issue size is reserved for this category

• Pricing option: Eligible to apply at the cut-off price in book-built issues

• Allotment method: Allotment is conducted through a computerised draw of lots when the issue is oversubscribed
   

Applications in this category can be submitted through ASBA-enabled bank accounts or UPI-linked demat platforms.

Read more about Retail Individual Investors
 

2. Non-Institutional Investors (NIIs) / High Net-Worth Individuals (HNIs)

Non-Institutional Investors include applicants whose investment amount exceeds the retail threshold of ₹2,00,000.

Who qualifies as an NII

• Individuals applying for more than ₹2,00,000

• HUFs, NRIs, companies, trusts, and societies applying above the retail limit

Key characteristics

• Reservation: Minimum 15% of the total issue size

• Pricing requirement: Bids must specify a price within the price band; the cut-off option is not available

• Allotment method: Shares are allotted on a proportionate basis in case of oversubscription

• Bid revision: Allowed during the issue period as per exchange rules; no changes are permitted after issue closure
   

This category is often referred to as the HNI segment in IPO subscription data published by stock exchanges.
 

3. Qualified Institutional Buyers (QIBs)

Qualified Institutional Buyers are regulated entities with institutional investment capabilities and oversight.

Who qualifies as a QIB

• Mutual funds

• Scheduled commercial banks

• Insurance companies

• Public financial institutions

• Foreign Portfolio Investors (FPIs)

• Pension and provident funds meeting prescribed corpus thresholds

Key characteristics

• Reservation: At least 50% of the net offer is reserved for Qualified Institutional Buyers as per SEBI ICDR norms.

• Pricing requirement: Bids must be placed at a specific price within the band

• Allotment method: Proportionate allocation based on bids received

• Bid modification: Permitted during the bidding window; no withdrawal after issue closure
   

QIB participation is disclosed daily during the subscription period and forms part of the book-building process data published by exchanges.
 

4. Anchor Investors

Anchor Investors are a sub-category of Qualified Institutional Buyers who are allotted shares prior to the public opening of an IPO.

Eligibility

• Only entities qualifying as QIBs

• Minimum application size: ₹10 crore

Key characteristics

• Allocation limit: Up to 60% of the QIB portion may be allocated to anchor investors

• Timing: Allotment is completed one working day before the IPO opens to the public

• Lock-in:

  • 50% of anchor allocation is subject to a 90-day lock-in

  • Remaining 50% carries a 30-day lock-in

• Disclosure: Anchor investor details are published in the Red Herring Prospectus (RHP) and stock exchange filings
   

Anchor allocations form part of the institutional book and do not alter the issue price or public subscription process.
 

5. Others (Employees and Shareholders)

This category covers specific reservations that may be offered by the issuing company to employees and, in certain cases, to existing shareholders of a promoter or group entity, as disclosed in the offer document.

Eligibility

• Employees: Permanent employees of the issuing company or its subsidiaries, as specified in the prospectus

• Shareholders: Equity shareholders of the identified parent or group company as on the record date mentioned in the offer document

Key characteristics

• Reservation: Allocation size is determined by the issuer and disclosed in the prospectus; there is no uniform percentage prescribed across IPOs

• Pricing: Shares under this category may be offered at a price different from the public issue price, subject to SEBI-permitted limits and disclosures

• Allotment basis: Allocation is made in accordance with the category-specific terms outlined in the offer document

• Lock-in: Shares may be subject to lock-in requirements, depending on SEBI regulations and issue-specific conditions
   

Employee and shareholder reservations, where provided, form part of the overall issue structure and operate within the regulatory framework governing public issues, without affecting the allocation methodology of retail, non-institutional, or institutional investor categories.

Participation in an IPO requires the following, irrespective of investor category:

• A trading account with a SEBI-registered broker

• A demat account for holding shares electronically

• Access to UPI or ASBA-enabled bank accounts
  
  

RIIs may apply via mobile trading apps or internet banking. NIIs and QIBs often apply through institutional brokerage channels with detailed bidding strategies.

Investor category classification determines how IPO applications are processed under regulatory norms. Category identification affects:

• The applicable investment limit

• The reservation pool under which the application is considered

• The allotment mechanism applied in case of oversubscription
   

Applications submitted under an incorrect category, such as exceeding the retail investment limit while applying as a Retail Individual Investor, may be rejected or treated as invalid in accordance with SEBI rules.

IPOs provide a regulated mechanism for companies to raise capital and for different categories of investors to participate in public markets. Investor classification in IPOs—from Retail Individual Investors to Qualified Institutional Buyers and anchor investors—defines eligibility, reservation limits, and allotment procedures. Understanding these category distinctions provides context on how applications are evaluated and processed under SEBI’s regulatory framework.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.