The Securities and Exchange Board of India (SEBI) has categorized IPO investors into four types - Qualified Institutional Buyers (QIB), High Net Worth Individuals (HNIs), Anchor Investors, and Retail Investors. In this article, we’re going to take an in-depth look at who retail investors in IPO are and a few other details regarding this category of investors. Let’s begin.
Individuals investing up to Rs. 2 lakhs in an IPO are categorized by the SEBI as retail investors. Such investors are usually small-time individuals with low net worth and without the backing of large corporations. The retail investor category includes resident Indian individuals, Non-Resident Indian (NRI) individuals, and Hindu Undivided Families (HUFs).
Now that you’re aware of who retail investors in an IPO are, here are a few facts that you need to know about this category of investors.
As you’ve already seen above, the maximum amount that the retail investor category can invest in an IPO is capped at Rs. 2 lakhs. Therefore, individuals wanting to invest more than Rs. 2 lakhs will no longer be classified as retail investors. Instead, they will be classified as High Net Worth Individuals (HNIs) and will not be able to claim any of the benefits that retail investors enjoy.
Every Initial Public Offering (IPO) of a company has a certain portion of the issue allocated specifically for retail investors. Usually, around 35% of the public issue is reserved specifically for retail investors.
However, this percentage is only applicable to companies that have a track record of generating profits continuously for the previous 3 years. If a company fails to satisfy this condition, it is allowed to allocate only about 10% of the entire issue for retail investor subscription.
Usually, all Initial Public Offerings of companies feature a lock-in period of 6 months from the date of listing on the stock exchanges. During this lock-in period, early investors, including angel investors, venture capitalists, and company insiders, are disallowed from selling their stakes through the stock exchanges. Fortunately, there’s no IPO lock-in period for retail investors, meaning they’re free to sell the shares allotted to them as a result of applying for the issue right on the first day of the listing itself.
With this, hope you’re aware of who retail investors in an IPO are. If you’re planning on investing in an upcoming IPO, make sure not to invest more than Rs. 2 lakhs if you wish to be categorized as a retail investor.
Also, make sure you have a Demat account in your name before attempting to invest in an IPO. If you don’t have one, visit the website of Motilal Oswal today to open a Demat account for free within a few minutes.
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