There are four different types of investors in an Initial Public Offering - retail investors, anchor investors, High Net Worth Individuals (HNIs), and Qualified Institutional Buyers (QIBs). If you’re someone who is planning on investing in the public issue of a company, you need to know who these categories of investors are. In this article, we’re going to be focusing on QIB in an IPO to find out all about them.

What is the Meaning of QIB in an IPO?  

As you’ve already seen above, QIB is an acronym for Qualified Institutional Buyers. QIBs are a category of investors in the Initial Public Offering of a company. They are large financial institutions that possess significant expertise in the equity market and are capable of investing large amounts of money in a company. Since Qualified Institutional Buyers have a lot of resources, they use them to thoroughly evaluate a public issue before investing. 

Who is Classified as QIB in an IPO? 

Now that you’re aware of the full form of QIB in an IPO, let’s take a look at the entities that are usually classified as Qualified Institutional Buyers.

The Securities and Exchange Board of India (SEBI), which is an independent authority responsible for monitoring the capital markets in the country, has laid out detailed rules and regulations that specify who can be categorized as a QIB. 

According to the Disclosure and Investor Protection Guidelines issued by the SEBI in the year 2000, the following entities are usually eligible to be classified as a Qualified Institutional Buyer as long as they satisfy the minimum net worth, minimum investment size, and track record of investment conditions.  

• Scheduled Commercial Banks (SCBs) 
• Public Financial Institutions 
• Foreign Institutional Investors (FIIs) registered with the SEBI 
• Mutual Funds 
• Foreign Venture Capital investors (VCs) registered with the SEBI 
• Domestic Venture Capital investors registered with the SEBI 
• State Industrial Development Corporations (SIDCs)
• Provident funds and pension Funds with a minimum investment corpus of Rs. 25 crores 
• Companies registered with the Insurance Regulatory and Development Authority of India (IRDAI) for providing insurance products Discover the latest updates and insights on the Upcoming IPOs 2023!

What are Some of the Advantages that QIBs in an IPO Get to Enjoy? 

Now that you know the meaning of QIB in an IPO and who can constitute a QIB, let’s take a look at a few of the advantages that they get to enjoy over other categories of investors. 

1. They’re financially very strong 

The financials of Qualified Institutional Buyers generally tend to be very strong. Since they have significantly more financial resources than other categories of investors, they can afford to invest crores of rupees in an IPO. In some cases, large QIBs have even managed to subscribe to up to 30 to 50% of the entire public issue.  

2. They can bear the risk of investing in a new IPO 

Due to their seemingly very strong financial position, QIBs can easily take on the risk involved with investing in a relatively new company. As a result, even if the IPO underperforms, institutional buyers will be able to take the hit without any significant negative consequences, which is not the case with other categories of investors. 

3. They’re offered a sizable portion of the IPO 

Since QIBs are investors with deep pockets, companies often allocate a major portion of the IPO to them. Depending on the company and its public issue, anywhere from 65% to 90% can be allocated to Qualified Institutional Buyers. Compare that with retail investors, who usually only get around 10% to 35% of the IPO allocated to them. 

Conclusion

With this, you must now be aware of what QIB in an IPO is. Now, if you’re planning on investing in an upcoming IPO, make sure to first open a Demat account in your name. You can visit Motilal Oswal to open one for free through an online paperless process. 

 

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