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What is NII?

31 Oct 2023

The Securities and Exchange Board of India categorises investors of IPOs into three different types - QIBs, NIIs and retail investors. If you wish to invest in the public issue of a company, you need to know what these terms mean and represent. In this article, we’re going to deep dive into the NII category of investors. Let’s begin. 

What is NII?

The full form of NII is Non-Institutional Investor. The term is used to represent a category of IPO investors who apply for more than ₹2 lakhs worth of shares in a public issue. The SEBI further categorises NIIs into two types - small NII (sNII) and big NII (bNII). Here’s a more in-depth look at each of these categories. 

Small NII (sNII) 

Non-Institutional Investors who bid for shares in an IPO worth more than ₹2 lakhs but less than ₹10 lakhs are termed as small NIIs. Around one-third of the shares reserved for the Non-Institutional Investor category are set aside for sNIIs. 

Big NII (bNII) 

Non-Institutional Investors who bid for shares in an IPO worth more than ₹10 lakhs are termed as big NIIs. The remaining two-thirds of the shares reserved for the Non-Institutional Investor category are set aside for bNIIs. 

Who Can Be Categorised as NII?

Now that you’re aware of the NII meaning in an IPO, let’s take a look at the list of individuals and entities eligible for classification as Non-Institutional Investors. 

  • Resident Indian Individuals 
  • Non-Resident Indian (NRI) Individuals 
  • Hindu Undivided Families (HUFs) 
  • Resident Indian Companies 
  • Corporate Bodies 
  • Societies 
  • Scientific Institutions 
  • Trusts 

Rules and Regulations Associated with NIIs 

With the full form of NII and the list of entities eligible for classification as Non-Institutional Investors out of the way, let’s take a look at some of the rules and regulations governing NIIs. 

No Registration Requirements 

Unlike Qualified Institutional Buyers (QIBs), Non-Institutional Investors don’t have to formally register with the SEBI to apply for an IPO. Any NII desirous of subscribing to a public issue can apply as long as they possess a demat account. 

Minimum Reservation Portion

SEBI regulations mandate that every public issue must have a reservation portion dedicated to Non-Institutional Investors and that it should not be less than 15% of the total issue size. The company may choose to set aside more than 15% of the total issue size for NIIs but never less than that. 

For instance, let’s say that the total issue size of an IPO is around 1 lakh equity shares. The company must reserve at least 15% of the issue (15,000 equity shares) for NIIs. However, if the company desires, it may set aside more than 15% (15,000 equity shares) for Non-Institutional Investors as well.  

Restriction on Bid Withdrawals 

Unlike retail investors, Non-Institutional Investors cannot withdraw or cancel their bids once placed. Additionally, they cannot lower their bids. That said, NIIs may choose to revise their bids upward until the close of the IPO subscription period. 

Restriction on Bidding at Cut-Off Price 

Non-Institutional Investors cannot bid for shares in an IPO at the cut-off price like retail investors. They will have to enter their bids in the price column manually. 

How are Shares Allotted to NIIs? 

The process of allotment of shares to Non-Institutional Investors may vary slightly depending on whether they fall under the sNII category or the bNII category. 

Allotment Process for sNII 

If there’s no oversubscription in the sNII category of the public issue, all of the investors will get full allotment. 

On the other hand, if the sNII reservation portion is oversubscribed, all investors eligible for allotment shall receive no less than the minimum application size, i.e., ₹2 lakhs worth of shares or slightly higher. This is irrespective of the number of shares the eligible applicant had applied for. 

For instance, if the sNII reservation portion of a public issue is oversubscribed by 2 times, for every 2 applicants, 1 will get a minimum allotment for ₹2 lakhs worth of shares. 

Allotment Process for bNII 

The allotment process for bNIIs is similar to that of sNIIs in the case of no oversubscription. This effectively means that all of the applicants in the bNII category will get full allotment if there’s no oversubscription. 

On the contrary, if the bNII reservation portion is oversubscribed, all investors eligible for allotment shall receive no less than the minimum application size, i.e., ₹2 lakhs worth of shares or slightly higher. 

Even though the minimum investment size for bNII category of investors is more than ₹10 lakhs, in the case of oversubscription, the bNIIs are only eligible to get a minimum of ₹2 lakhs worth of shares. 

Conclusion

With this, you must now be aware of what NII is. The next time you wish to apply for an IPO, remember that the reservation portion set aside for NIIs is usually almost always oversubscribed. This can reduce the chances of you getting an allotment. Additionally, keep in mind the various restrictions that are also put in place before placing your bids. 

If you wish to increase your chances of allotment, consider applying under the retail investor category. Although retail investors cannot bid for shares worth more than ₹2 lakhs, the chances of getting at least a few lots allotted would be comparatively higher than applying through the  Non-Institutional Investor category.

Speaking of investing in upcoming IPOs, an active demat account is a mandatory prerequisite. If you don’t have one, all that you need to do is head over to Motilal Oswal’s official website. There, you can quickly open a demat account and a trading account for free. The entire application process is paperless, can be completed online and only requires a few minutes of your time. So, don’t wait; go ahead and get your trading and demat account today! 

 

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