HNI IPO Application Guide (NII Allotment Rules, Benefits & Funding)

Yes, any resident individual or non-resident individual (NRI) can apply in the HNI category. The HNI category is also known as Non-Individual Investors or NII.

A retail IPO application of more than Rs 2 Lakh is considered an HNI application. The shares for this application are allocated under the (Non-Institutional Investors) NII category.

Note:

• IPO application in HNI Category can only be made using ASBA through the net-banking facility.
• UPI cannot be used as a payment option for the HNI IPO application.
• Brokers like Zerodha, Angel, or Upstox do not offer HNI IPO applications as they offer UPI-based IPO applications.
• Similar to a retail application, funds remain blocked in your bank account. You continue earning interest on funds in your savings account.

ICICI Direct offers online IPO applications for retail and HNI investors. You could also use ICICI Bank Net Banking to apply for an IPO. The benefit of using the ICICI Bank Net Banking IPO Application is, it allows you to use your demat account with other brokers.

Steps to Apply in HNI Category ICICI Direct

1. Login to ICICI Direct
2. Click on the IPO tab in the top navigation bar
3. Choose the IPO and click Apply button
4. Choose the 'Non-Institutional' radio button
5. Fill in the bidding details i.e. price and shares
6. Submit the application.

State Bank of India (SBI) offers online IPO applications for retail and HNI investors through its Net Banking facility. SBI offers 3rd Party IPO applications which means you could apply up to 5 IPO applications from the same bank account in an IPO. The 3rd Party IPO Application is the only way to apply in an IPO online for Minors, HUF, Corporate, etc.

Steps to Apply in HNI Category ICICI Direct

1. Login to SBI Net Banking Website
2. Click on the e-services tab in the top navigation bar
3. Click on Demat & ASBA Services in the left navigation bar
4. Click on IPO (Equity)
5. Choose the IPO
6. Fill in the bidding details i.e. price and shares
7. Submit the application.

Zerodha doesn't provide an IPO application for the HNI category. A stockbroker like Zerodha, Angel, Upstox, and Groww doesn't offer banking services. They offer UPI as a payment option for IPO applications. As UPI has a transaction limit of Rs 2L max, you cannot use UPI as a payment option for the HNI IPO application.

If you have a Zerodha Demat Account, you could apply IPO in the HNI category using two ways:

1. Banks' Net Banking facility
2. Submitting the paper form to the bank

Steps to apply IPO in HNI Category in Zerodha

1. Log in to the net banking facility of your bank (i.e. SBI, ICICI, or HDFC)
2. Go to the IPO investment section of the website or app
3. Choose the IPO and click Apply button
4. Choose 'Non-Institutional' as a category
5. Choose CDSL as depository.
6. Fill in your Zerodha Demat Account information
   • Depository Name: ZERODHA SECURITIES PRIVATE LIMITED
   • DP ID FOR IPO APPLICATION: 12081600XXXXXXXX
7. Fill in the bidding details i.e. price and shares
8. Submit the application.

The allocated shares are transferred to your Zerodha demat account. You could sell them on the day of listing. The funds remain locked in your bank account and withdrawn at the time of allotment for allocated shares.

The minimum amount for HNI IPO applications in the NII category is Rs 2 lakh. Any retail IPO application with over Rs 2 lakh is considered in HNI or (Non-Institutional Investor) NII category.

The maximum bid in the NII category is the number of Equity Shares in the given lots not exceeding the size of the Offer (excluding the QIB Portion).

No, you cannot apply for IPO in the HNI category through UPI. The UPI payment gateway has a universal transaction limit of Rs 2 Lakh while the HNI application should be above Rs 2 Lakh.

Following are two options available for HNI's to apply in IPOs:

1. Banks Net-Banking Facility (ASBA)

   You can apply for IPO in HNI using ASBA offered by the net-banking facility of banks. All banks including public and private banks offer online IPO facilities on their net banking website and mobile app.

2. Filling Paper Form (ASBA)

   You could visit the bank branch and apply in the paper form.

Investment in the HNI category of IPO is a high-risk investment. An investor should have an understanding of risks and rewards when investing in this category.

Risks in applying in HNI Category

• Investing Borrowed Money

  Most HNIs take IPO funding loans to invest in IPO. There are a few risks with this:

  1. You have to pay interest on the loan.
  2. In case the share prices go down on listing, you may have to book losses quickly.
  3. You have to sell allocated shares as soon as possible to repay the loan.
  4. You have to calculate the cost of each share carefully along with the estimation of oversubscription.
• 10 Days Until Listing

  The IPO shares start trading in the market in 7 to 10 days. A lot can happen in those days. In case the market turns adverse in 10 days, you may incur huge losses on the listing day.

• Number of Shares Applied

  The shares in the NII category for HNIs are allotted by the lottery system if the number of lots applied is less than NII over-subscription. In this case, you may not get the allotment. Even if you get it, it will be just one lot.

  HNIs with cash of 10-50 lakhs in their savings bank could apply with their funds. In this case, the risk is low but the chances of allotment are minimal too. Good IPO subscribes 300 to 1000 times in the NII category.

• Cancel or Modify Bid

  HNIs are not permitted to revise or cancel the bid once placed. Most HNI's apply at the last minute.

• Cannot apply on Cut-off Price

  HNIs are not permitted to apply at the cut-off price. They have to place the bid at a fixed price in the give price band. The HNIs doesn't get any allotment if the bid price is less than the price fixed for the IPO shares.

HNIs take a calculated risk on IPO funding. They calculate and estimate how much subscriptions will be in the HNI category. They apply for 10 to 20 times higher lots than subscriptions with the funded amount.

Example:

• NII oversubscription (Expected): 100 Times
• Applied Quantity: 1000+ Lots
• Lot Size: 15 Shares
• Allotment (Confirm): 10 Lots (if 100x Subscribed)
• Interest Cost: Rs 120 per share (breakeven Point)
• Total Interest Cost: Rs 120 * 10 Lots * 15 Shares per lot = Rs 18,000
• Listing Gain per Share (Estimated): Rs 150 per Share
• Profit: Rs 150 * 10 Lots * 15 Shares per lot = Rs 22,500
• Net Profit (Estimated) = Rs 22,500 - Rs 18,000 (Interest Cost) = 4,500

Note in the above calculation, HNI has to estimate:

• NII Oversubscription
• Listing day gains

This is one of the key factors in calculating the grey market premium (GMP) of IPO shares.

HNIs take short-term loans of a few crores to a few hundred crore rupees to apply in an IPO. These loans are issued by public and private sector banks, NBFC, and other financial institutions.

Most of these large-size loans come at around 7% to 8% per annum interest rate. They are issued for 7 days.

The interest rate on IPO funding varies by:

1. By IPO
2. A person who is taking IPO funding
3. Financial institutions offering IPO funding

HNI is part of the NII investor category. The basis of allotment for HNI depends on the type of IPO issue and the subscription levels.

In case of a mainboard IPO, the basis of allotment for HNI is as given below:

• In case of under subscription in NII category, all HNI investors will receive full allotment.
• In case of oversubscription, each HNI/NII investor will be allotted at least one lot as applicable to the NII category, subject to availability of shares. If any shares remain after the minimum allotment, they will be allotted on a pro-rata basis.
• Calculation methodology applied:
  • The maximum number of allottees (sNII and bNII) to whom NII allotment can be made is determined.
  • Based on the number of applications received per category, the pro rata number of maximum allottees per category is determined.
  • The number of allottees per category determined in this way is then allocated a minimum number of shares in a lottery.
  • Remaining shares, if any, will then be distributed to the maximum number of allottees selected above.

Note:

• In a mainboard IPO, there are small NIIs (sNIIs) and Big NIIs (bNIIs). The allotment method for sNII and bNII is the same.
• Even though the minimum bid amount for bNII is equivalent to Rs. 10 lakhs and above. In case of oversubscription, bNII will be allotted shares worth Rs. 2 lakhs. (i.e. the minimum NII bid lot).

In an SME IPO, allotment to HNI/NII is done on pro-rata basis such that each allotted NII gets a minimum bid lot. In an SME IPO, there is no sNII or bNII.

Further details and examples can be found under Basis of Allocation.

Splitting the funds into two HNI IPO applications in an IPO does increase the chance of getting 2 lots but it also increases the chance of getting 0 lots. You could choose this strategy if you like the higher chance of getting 1 lot rather than increased chances of getting 2 lots.

Below is a calculation posted by our IPO forum member IPOLogic to support the above view:

Example 1

• IPO Oversubscription (Expected): 100 times
• Available Funds for 120 Lots

1. You split the money in 2 accounts with 60 lots each. So, individual oversubscription factor = 60/100 = 0.6
   Chances of getting 0 lot: = (1-0.6) * (1-0.6) = 0.16 = 16%
   ii. Chances of getting 1 lot: = (0.6) * (1-0.6) + (1 - 0.6) * (0.6) = 0.48 = 48%
   iii Chances of getting 2 lot: = (0.6) * (0.6) = 0.36 = 36%
   iv Chances of getting at least 1 lot = 1 - 16% = 84%
2. You don't split the money. So, individual oversubscription factor = 120/100 = 1.2 lot
   You will 100% chance of getting 1.2 lot
   ii chances of getting at least 1 lot = 100%

Example 2

• IPO Oversubscription (Expected): 100 times
• Available Funds for 30 Lots

1. You split the money in 2 accounts with 15 lots each. So, individual oversubscription factor = 15/100 = 0.15
   chances of getting 0 lot: = (1-0.15) * (1-0.15) = 0.7225 = 72.25%
   ii. chances of getting 1 lot: = (0.15) * (1-0.15) + (1 - 0.15) * (0.15) = 0.255 = 25.50%
   iii chances of getting 2 lot: = (0.15) * (0.15) = 0.0225 = 2.25%
   iv chances of getting at least 1 lot = 1 - 72.25% = 27.75%

You don't split the money. So, individual oversubscription factor = 30/100 = 0.3 lot
i. chances of getting 0 lot: = (1 - 0.30) = 70 %
ii. chances of getting 1 lot: = 0.30 = 30%
iii chances of getting 2 lot: = 0%
iv chances of getting at least 1 lot = 1 - 70% = 30%

So, if you want some chance to have 2 lots, then it increases your chance of getting 0 lots.

Thus, it will decrease the chance of getting at least 1 lot too.

To get a confirmed allotment in the HNI category, you need to apply for more lots than the final issue over-subscription figure. But the challenge is, to do this; you will have to guess how many times the IPO will oversubscribe in NII (HNI) Category.

The IPO allotment in the Non-Institutional Investors (NII) category for HNIs is done either on a proportionate basis or lottery system. The allotment process is based on the number of lots applied and over-subscription in the NII category.

Let's understand this using three scenarios. Assume an IPO oversubscribed 100 times.

• If you have applied for 100 lots, you get a confirmed allotment of 1 lot.
• If you have applied for more than 100 lots, you get a proportionate allotment over the confirmed one lot.
• If you have applied for lesser than 100 lots, the allotment is done based on the lottery system and thus is not guaranteed.

The HNI IPO allotment calculator can help you derive the number of shares/lots to be applied for, to get confirmed allotment based on the estimated oversubscription figure.

It's not easy to predict the subscription level of an IPO. The subscription level depends on factors like the issuer company fundaments, issue size, issue prices, grey market premium and market conditions.

Some analysts guess IPO over-subscription levels before IPO closes to estimate the HNI IPO Shares cost. But their prediction keeps changing until the last minute.

Most good IPOs get heavily over-subscribed in the range of 300 to 1000 times under the NII category (HNI) and 15 to 30 times in the retail category by application.

The oversubscription also depends on the demand in the grey market. The higher the demand for an IPO in the grey market, the higher are the chances of it getting oversubscribed.

It is difficult to derive the expected over-subscription of an IPO based on the historic data as there are too many variables to it.