What is QIP? Meaning, Process and Benefits Explained

Raising capital to support expansion, reduce debt, or strengthen operations is a core objective for many publicly listed companies in India. Among the various mechanisms available, Qualified Institutional Placement (QIP) has emerged as a widely used method to source funds without going through complex regulatory procedures associated with other capital-raising routes. Introduced by SEBI to make fundraising more efficient, QIP allows companies to issue equity shares or convertible securities to institutional investors.

This blog explains what is QIP in share market, how the process works, and the regulatory steps companies must follow.

What Is a Qualified Institutional Placement (QIP)?

QIP stands for Qualified Institutional Placement. It is a Securities and Exchange Board of India (SEBI)-approved and regulated mechanism that allows publicly listed companies to raise capital. Under this scheme, companies can issue shares directly to a SEBI-specified class of institutional investors in exchange for equity capital. Companies can also issue equity-convertible debentures to the same class of investors through the QIP route.

As the statutory regulator of India’s stock exchanges and securities markets, SEBI introduced the QIP scheme on 8 May 2006. Chapter XIIIA of the Disclosure and Investor Protection (DIP) Guidelines, 2000, applies to issuing shares, such as equity and debentures, to Qualified Institutional Buyers (QIBs). The primary purpose of introducing this scheme was to reduce the dependence of Indian publicly listed companies on foreign equity investors.

Who are QIBs?

Qualified Institutional Buyers are a SEBI-registered special class of domestic institutional investors who own or manage a large corpus of funds. They have the expertise and capacity to assess and evaluate the merits of securities offered through the QIP route. As per the SEBI regulations, the following entities are eligible to register as QIBs.

• Mutual funds
  
• Scheduled commercial banks
  
• Public financial institutions
  
• Life and general insurance companies
  
• Pension funds
  
• Provident funds
  
• SEBI-registered Foreign Portfolio Investors (FPIs)
  
• SEBI-registered Alternative Investment Funds (except Venture Capital and SME funds)
  
• Multilateral and Bilateral Development Financial Institutions (e.g., Asian Development Bank)
  
• SEBI-registered stock market brokers
  

How Companies Undertake a QIP

Raising capital through a QIP is simpler than taking the Follow-on Public Offering (FPO) route. As per the DIP guidelines, here are the key steps involved in issuing securities through QIP:

Step 1 - Getting board approval

A publicly listed company must get approval from its board of directors regarding the amount to be raised, the type of securities to be issued, and the purpose of raising capital.

Step 2 - Getting shareholders’ approval

Once the board approves, the company must seek shareholder approval through a special resolution, passed by a majority vote.

Step 3 - Appointing a BRLM

Book Running Lead Managers (BRLMS) are appointed to oversee the QIP process. These are usually investment or merchant banks responsible for investor outreach, preparation of placement documents, and book building.

Step 4 - Preparing a placement document

A placement document (PD) outlines the terms and conditions along with necessary financial details about the company undertaking the QIP. Though similar to documents prepared for public listing and FPOs, the PD for a QIP does not require SEBI’s approval. The BRLM prepares it in consultation with the company.

Step 5 - Investor outreach

BRLMs organise investor outreach events or meetings to present the PD to potential QIBs, pitch the investment opportunity and respond to queries.

Step 6 - Book building

This step involves collecting bids from interested QIBs, discovering the final issue price and determining how shares will be allocated.

Step 7 - Allotting securities

Shares are then allotted to the successful QIB bidders based on the final bid outcomes.

Step 8 - Listing shares in stock markets

Finally, the allotted shares are listed on stock exchanges if there’s no lock-in period under the DIP guidelines.

Why Companies Opt for QIPs

SEBI introduced QIP to help publicly listed companies raise capital more efficiently and cost-effectively. Previously, companies had to rely on mechanisms like American Depository Receipts (ADRs), Global Depository Receipts (GDRs), or Foreign Currency Convertible Bonds (FCCBs) to bypass FPOs.

Benefits to Companies:

• Companies can raise capital faster QIPs compared to FPOs.
  
• Less regulatory scrutiny for companies and BRLMs.
  
• The cost of book building is much less than FPOs.
  
• The mechanism of price discovery is much simpler.
  
• A successful QIP improves a company’s credibility.
  
• Institutional investors help attract retail investors in subsequent FPOs.
  

Benefits to QIBs:

• It allows QIBs to invest at attractive prices.
  
• It takes a shorter time to invest funds than participating through FPOs.
  
• May allow crucial insights into the fundamentals of a company.
  

QIP vs Other Fundraising Methods: IPO, FPO, QIB

Depending on how quickly the company needs money and how much effort they are willing to put in, they can raise funds in different ways. Let’s compare them:

QIP vs IPO (Initial Public Offering):

When a company offers its shares to the public for the first time, it's called an IPO. It requires a lot of time, heavy paperwork, marketing and usually involves high costs. QIP, in comparison, is much quicker, simpler and doesn’t need as extensive regulatory approvals. Here is a table comparing QIP vs IPO to help you better understand the difference:

QIP vs FPO (Follow-on Public Offer):

After an IPO, if a company wants to raise additional funds from the retail and institutional investors, they use an FPO. The regulatory requirements and marketing efforts needed for a successful FPO are almost as lengthy as those for an IPO.

QIP, however, avoids public participation and is more efficient, especially when the markets are volatile.

While FPOs help increase the shareholder base, QIPs are more efficient when your priority is speedy fundraising at low cost.

QIP vs QIB (Qualified Institutional Buyer):

The terms QIP and QIB are often confused, but they refer to different things. QIP refers to a way for companies to raise capital by issuing funds to institutional investors. Whereas, QIB refers to institutional investors such as mutual funds, insurance companies, and foreign portfolio investors.

Limitations of QIPs

Despite its advantages, QIP comes with certain limitations:

• The number of QIBs is limited compared to retail investors, which may reduce pricing power and cause underpricing.
• The success of a QIP depends on the company’s stock performance and overall market sentiment.
• QIPs may cause short-term dilution of stake for existing shareholders.

Key Regulations Governing Qualified Institutional Placements (QIPs)

Only companies that are already listed and meet the basic shareholding rules are allowed to raise money through QIP fundraising. The goal is to make the fundraising process quicker while also keeping checks in place, so ownership is not influenced by promoters.

Here are some of the key regulations that go on QIPs:

• The company must be listed and must have a minimum public shareholding i.e. 25%
• Only QIBs, like mutual funds, FII and insurers, are allowed to invest
• A minimum of 10% of the issue must go to mutual funds
• More than 50% of the issue cannot be held by a single investor
• Investors must not be related to promoters

Who Created the Qualified Institutional Placement (QIP)?

The Qualified Institutional Placement was created by the Securities and Exchange Board of India (SEBI). The purpose was to help Indian companies raise money from local investors.

Ultimately, the goal in creating QIP was to make funding quicker and simpler for companies and reduce the need to depend on foreign capital.

Conclusion

Now that the blog answers the question, “What is QIP?” you must know that the Qualified Institutional Placement scheme continues to play a significant role in helping listed companies raise capital efficiently. In 2024 alone, firms in India mobilised over ₹1.2 lakh crore through this method. As market conditions remain favourable and companies seek to fund expansion or reduce debt, QIPs are likely to remain a preferred financing tool in the evolving Indian capital markets landscape.

Source:

SEBI
Government of India
Investopedia