How to apply for an IPO under the HNI category

An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time. Investing in IPOs can be lucrative, but the process differs for retail investors versus High-Net-worth Individuals (HNIs). HNIs get special treatment when applying for IPO shares. This article provides a step-by-step guide on applying for an IPO under the HNI category.

Understanding the HNI category

The Securities and Exchange Board of India (SEBI) defines HNIs based on annual income and net worth:

• Individuals with an annual income exceeding Rs 2 crore are HNIs.

• Individuals with a net worth exceeding Rs 7.5 crore are HNIs. Net worth includes financial assets like deposits, shares, and mutual funds.

Becoming an HNI gives you access to IPO shares before retail investors. You can apply on the HNI application date, usually 1-2 days before general retail investors can apply. HNIs also get a higher allocation of IPO shares.

Types of HNI categories

The HNI category is divided into two distinct subcategories, with each category catering to different investment capacities:

S-HNI category (small HNI)

The S-HNI category serves as a bridge between retail investors and the higher level of HNI investors. Key characteristics include:

• Investment range: ₹2 lakh to ₹10 lakh in a single IPO
• Separate allotment disclosures, promoting transparency
• Personalised review of applications

B-HNI category (big HNI)

The B-HNI category caters to investors with significant capital reserves:

• Investment threshold: Starts from ₹10 lakh with no upper limit
• Typically provides unlimited access and allocation capacity
• Often receives preferential treatment in competitive allocations Stock exchanges also issue distinct subscription status updates for both subcategories daily, providing transparency and enabling investors like you to assess market demand and opinion for each segment separately

Steps to apply for an IPO under HNI category

Follow these steps to apply for shares in an IPO under the HNI category:

Open a demat account: You need a demat account to hold the shares allotted in an IPO. Open one with a leading broker like Kotak Neo.

Update income tax returns: Your demat account provider will verify your HNI status based on your latest ITR. So, update your ITR for the last 2 assessment years showing income above Rs 2 crore.

Fill HNI indicator form: Fill the HNI indicator form provided by your broker, declaring your net worth is over Rs 7.5 crore. Submit supporting documents like bank statements and property records as proof.

Apply for upcoming IPOs: Apply for IPOs under the HNI category on your demat account provider's platform on the HNI bidding date. Fill the application form and confirm application details before submitting.

Pay application amount: Block the funds required to apply for IPO shares (application amount). Your broker will debit this from your linked bank account. Monitor the allotment status after the IPO closes.

Considerations for HNIs during the IPO application process

• Apply for the maximum lot size to increase share allocation chance. HNIs get a minimum lot size of Rs 2 lakh.

• Bid at the cut-off price for better chance of share allotment. Avoid bidding at a lower price.

• Apply on multiple demat accounts to increase overall allocation. But do not submit multiple applications from the same account.

• Cancel pending applications if you get shares in one demat account to boost allotment in other accounts.

Benefits of IPO application for HNIs

• Earlier access to IPO application: HNIs can apply 1-2 days before retail investors during the HNI bidding window. This increases the chance of getting share allotment.

• Higher allocation of shares: HNIs may get up to 60% of shares reserved for them in an IPO against 10% for retail investors.

• Priority allotment at cut-off price: HNI bids at cut-off prices get preference over retail investors to ensure share allocation.

• Minimum lot size of Rs 2 lakh: Unlike retail applicants, HNIs enjoy a higher minimum bid size of Rs 2 lakh, which improves allotment probability.

• Can apply through multiple demat accounts: HNIs can apply through multiple accounts to improve overall share allotment.

Common mistakes to avoid

• Not reading the offer document carefully – The offer document contains important details about the IPO process, timelines and allotment procedure.

• Applying for lower than maximum lot size – HNIs get a minimum lot size of Rs 2 lakhs. Applying for less reduces overall share allotment probability.

• Bidding at a lower price than the cut-off price – HNI bids above or at the cut-off price get preference in allotment over bids below the cutoff price.

• Forgetting to cancel pending applications – If you get shares allotted in one demat account, cancel pending bids in other accounts to improve overall allocation.

Conclusion

Applying for IPOs under the HNI category offers early access, higher allocation and better allotment probability. Ensure your demat account provider recognises your HNI status by updating income proofs. Apply for maximum lot size on opening day at the cut-off price. It is also a prudent step to use multiple demat accounts to apply and cancel pending bids post-allotment in one account. Follow these steps to have a rewarding IPO application experience under the HNI category.