SME IPO Consultant
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An IPO investor is a person or organization that purchases shares offered in an initial public offering of a company. Investors make this purchase with the expectation of making a profit. The process of buying IPO shares is very different from buying shares on the stock market. The company allot the shares within 7 days after the IPO closes.
IPO Investor Category
Each type of IPO investor has its own rules for IPO application , reserve ratio, and share allocation mechanism. Let us understand the types of IPO investors in detail.
1. Retail Individual Investors (RII)
Retail Individual Investors (RII) are essentially individual investors applying in IPOs.
Initially, the rules for RIIs were the same for both Mainboard and SME IPOs. However, with effect from 1st July 2025, SEBI revised the framework. Now, the concept of “RII” applies only to Mainboard IPOs, while in SME IPOs they are simply referred to as Individual Investors with different application rules.
Key Features and Differences: Mainboard vs SME (Post 1 July 2025)
|
Feature |
Mainboard IPOs (RII) |
SME IPOs (Individual Investors) |
|---|---|---|
|
Terminology |
Called Retail Individual Investors (RIIs) |
Called individual investors who applies for minimum application size (RII concept not used as minimum application size exceeds Rs. 2 lakhs) |
|
Minimum Application Size |
1 lot |
2 lots |
|
Investment Limit |
Up to Rs 2 lakhs |
Maximum 2 lots |
|
Reservation (Book-Building) |
Minimum 35% reserved |
Minimum 35% reserved (same as mainboard) |
|
Reservation (Fixed Price) |
Minimum 50% reserved |
Minimum 50% reserved (same as mainboard) |
|
Allotment (if oversubscribed) |
Minimum one lot (subject to availability); and any remaining shares are distributed proportionately. |
Proportionate |
|
Bidding at Cut-off Price |
Allowed |
Not allowed |
|
Lock-in |
No lock-in; can sell on listing |
No lock-in; can sell on listing (same as mainboard) |
Retail Reservation Rules in IPO
Each IPO has a reserved quota (number of shares) for IPO individual investors. The reservation depends on several factors, including the type of issue (see below):
|
Issue Type |
RII Reservation Rule |
|---|---|
|
Book Building IPO ( Profitability Route ) |
Minimum 35% of the book is reserved for retail investors. |
|
Book Building IPO ( QIB Route ) |
Not more than 10% is reserved for retail investors. |
|
Fixed Price IPO |
Minimum 50% of the net offer is allocated to retail investors. |
Allotment Basis for Retail Category
- If the IPO in the RII category is not oversubscribed , a full allocation will be made to all applicants.
- If the IPO in this category is oversubscribed, the allocation will be made by lottery and applicants will receive at least one lot regardless of how many lots they have applied for.
Example
- An IPO A, the retail category is oversubscribed twice (by number of applications ). 1 out of 2 applicants will receive 1 lot, regardless of how many shares they applied for.
- In IPO X, investor A has applied for Rs 2 lakh (15 lots), investor B has applied for Rs 15,000 (1 lot) and investor C has applied for Rs 1 lakh (7 lots). If the IPO is subscribed three times in the retail investor category (based on the number of applications), the allocation will be done by lottery. Only one out of three applicants will be allotted a lot. It does not matter how many shares they have applied for. They will receive a maximum of 1 lot.
IPO Retail investor limit
A retail investor can invest maximum up to Rs 2 lakhs in an IPO. A retail individual investor could choose the NII category for an IPO application of more than Rs 2 lakhs.
Retail investor lock-in period
There is no lock-in period for retail investors in an IPO. Retail investors can sell their IPO shares as soon as they are listed for trading on the exchange(s).
Tips for Retail Investors in an IPO
- Always apply at the cut-off price in the retail category.
- If the IPO is oversubscribed, apply for only 1 lot per IPO application.
- To maximize allocation, apply for multiple accounts in your family member's name.
2. Non-Institutional Investors (NII)
The Non-Institutional Investor (NII) category is meant for Indian resident individuals, NRIs, HUFs, companies, corporations, academic institutions, societies, and trusts.
- For mainboard IPOs, the bidding amount in the NII category has to be more than Rs 2 lakhs.
- For SME IPOs, the minimum application size in the NII category is 3 lots and above.
Unlike QIB bidders, investors in the NII category do not require SEBI registration.
Any individual investor applying in the NII category is referred to as a High Net-Worth Individual (HNI). Non-institutional investors include HNI, HUF, LLP, Private Limited Company, Limited Company, Trusts, and others.
NII Subcategory
The NII category is further divided into two subcategories:
-
Small NII (sNII / sHNI)
- Mainboard IPOs: Applications worth Rs 2 lakhs to Rs 10 lakhs.
- SME IPOs: Applications of 3 lots and above, up to the number of lots where the application value does not exceed Rs 10 lakhs.
- Allocation: One-third (1/3) of the shares in the NII category are reserved for sNII.
-
Large NII (bNII / bHNI)
- Mainboard IPOs: Applications worth more than Rs 10 lakhs.
- SME IPOs: Applications of such number of lots that the application value exceeds Rs 10 lakhs.
- Allocation: Two-thirds (1/3) of the shares in the NII category are reserved for bNII.
NII Investor IPO Limit
|
NII Subcategory |
Mainboard IPOs |
SME IPOs |
|---|---|---|
|
Small NII (sNII / sHNI) |
Rs 2 lakhs to Rs 10 lakhs |
3 lots and above, up to the lot value where the application does not exceed Rs 10 lakhs |
|
Large NII (bNII / bHNI) |
More than Rs 10 lakhs |
Such number of lots that the total application value exceeds Rs 10 lakhs |
IPO NII Allotment Process
The allotment process for NII (HNI) investors in IPOs is the same for both Mainboard IPOs and SME IPOs.
-
sNII (Small HNI) Allotment Process
- Not fully subscribed (<1x): All applicants receive full allocation.
- Oversubscribed (>1x): Each investor is allotted at least the minimum bid lot applicable to NII, subject to availability. The balance, if any, is distributed on a proportionate basiIf demand exceeds supply, allotment is done through a lottery process.
Example: If the sNII portion is subscribed 2x (by applications), then 1 out of 2 applicants will receive the minimum application (Rs.2 lakhs in mainboard / 3 lots in SME), regardless of how many shares they applied for.
-
bNII (Big HNI) Allotment Process
- Not fully subscribed (<1x): All applicants receive full allocation.
- Oversubscribed (>1x): Each investor is allotted at least the minimum bid lot applicable to NII, subject to availability and remaining on proportionate basis.
Even though the bNII entry threshold is Rs 10 lakhs+, in oversubscription cases the allotment can still be limited to the minimum NII bid lot.
NII Reservation Rules
The non-institutional investor category is reserved for a certain percentage of the total shares offered in an IPO. This is based on the issue type. The following are the limits for non-institutional investors:
|
Issue Type |
NII Reservation Rule |
|---|---|
|
Book Building IPO ( Profitability Route ) |
At least 15% is reserved for NII. 10% are reserved for bNII 5% for the sNII subcategory. |
|
Book Building IPO ( QIB Route ) |
Not more than 15% is reserved for NIIs. |
|
Fixed Price IPO |
After allocating at least 50% to retail investors, the remaining portion will be allocated to other individuals, companies, NIIs and QIBs. |
NII Locking Period
There is no lock-in period for HNI and NII; they can freely sell their allocated IPO shares on the day of listing .
IPO Retail Investor Vs IPO Non-Institutional Investor
|
Parameter |
Non-Institutional Investor (NII / HNI) |
Retail Investor (RII) |
|---|---|---|
|
Meaning |
Any investor (excluding QIB) applying above the retail limit. • Mainboard IPOs: More than Rs 2 lakhs. • SME IPOs: 3 lots and above. |
Any individual investor applying within the retail limit. • Mainboard IPOs: Up to Rs 2 lakhs. • SME IPOs: 2 lots. |
|
Investment Limits |
• Mainboard: Minimum Rs 2 lakhs. • SME: Minimum 3 lots. |
• Mainboard: Maximum Rs 2 lakhs. • SME: only 2 lots |
|
Reserved Quota |
|
|
|
Apply at Cut-off Price |
No |
Mainboard: Yes SME: No |
|
Withdrawal of Bid |
Modification possible while issue is open. Cannot withdraw once submitted. |
Permitted to withdraw while issue is open. |
|
Lock-in Period |
No lock-in period. |
No lock-in period. |
|
Allotment (if oversubscribed) |
Minimum bid lot applicable to NII , subject to availability and balance, if any, on a proportionate basis |
Minimum bid lot applicable to RII , subject to availability and balance, if any, on a proportionate basis |
3. Qualified Institutional Buyer (QIB)
Qualified institutional buyers include
- Mutual funds,
- Commercial banks,
- Public financial institutions and
- Foreign portfolio investors.
QIB stands for a qualified institutional buyer registered with SEBI to invest in IPOs in the QIB category.
Most QIBs represent small investors who invest through mutual funds, ULIP schemes of insurance companies and pension schemes. QIB invests in large amounts in IPOs.
QIBs cannot withdraw their bids once made. For this reason, QIBs invest in an IPO on the last day of the subscription period.
Qualified institutional buyers include investors like LIC, Nippon India Mutual Fund, Goldman Sachs, Kuber India Fund, Elara India Opportunities Fund, BNP Paribas Arbitrage and etc.
QIB Quota in IPO
Following are the QIB limits for IPO:
|
Issue Type |
QIB Portion in IPO |
|---|---|
|
Book Building IPO ( Profitability Route ) |
Not more than 50% |
|
Book Building IPO ( QIB Route ) |
Not less than 75% |
|
Fixed Price IPO |
After allocating at least 50% to retail investors, the remainder will be allocated to other individuals, companies, NIIs, and QIBs. |
QIB Holding Period
There is no holding or lock-up period for IPO shares issued under the QIB category. QIB investors can sell them as soon as trading in the IPO shares begins on the stock exchanges .
However, there is a lock-in period for QIB investors who qualify as anchor investors .
QIB Vs HNI/NII
The difference between institutional and Non-Institutional Investors.
|
Qualified Institutional Buyers (QIB) |
Non-Institutional Investor (NII/HNI) |
|
|---|---|---|
|
Meaning |
QIBs are institutional buyers registered with SEBI. These include mutual funds, banks, FIIs and other financial institutions. |
Non-Institutional Investors (NIIs) are investors (other than QIBs) who apply for more than Rs 2 lakhs in a Mainboard IPO or for a minimum of 3 lots in an SME IPO. High Net-Worth Individuals (HNIs) form a part of the NII category |
|
Minimum Investment |
No minimum limits |
Mainboard IPO: Rs 2 lakh for Small NII and Rs 10 lakh for the Big NII category. SME IPO: Small NII - Minimum 3 lots; Big NII - Such number of lots that the application value exceeds Rs 10 lakhs. |
|
Reserved Quota |
|
|
|
Apply at the Cut-off price |
No |
No |
|
Withdrawal of Bid |
Not possible |
Not possible. |
|
Price Modification |
Possible but in upward direction only. |
Possible but in upward direction only. |
|
Lock-in Period |
No lock-in period. |
No lock-in period. |
|
Allotment (if over-subscribed) |
Proportionate |
Minimum bid lot applicable to NII, subject to availability of shares in NII category and balance, if any, on a proportionate basis. |
4. Eligible Employees
The issuing company may reserve a portion of the public offering exclusively for its eligible employees . The eligibility criteria are explained in the prospectus document.
In most cases, the following employees are eligible to apply under the reserved employee category:
- Permanent or full-time employees of the Company, its holding company or a subsidiary working in India or abroad.
- Employees who are closely related to the full-time or part-time director.
- Employees who are closely related to the entity whose financial statements are consolidated with the issuer's financial statements.
IPO Employee Quota
The IPO prospectus document details the employee reservation quota and the discount (if any) offered to employees.
Under the regulations, the employee reservation quota for an IPO offering may not exceed 5% of the company's post-issue paid-up capital.
In mainboard IPOs, employees can typically apply up to Rs 2 lakhs under the retail category, and from Rs 2 lakhs to Rs 5 lakhs under the NII category. In SME IPOs, the minimum application size is usually 2/3 lots. The maximum application limit for employees is generally Rs 5 lakhs. However, to avail the employee discount (if any), the investment amount should not exceed Rs 2 lakhs.
The exact eligibility, lot size, and employee reservation (if any) should always be verified from the IPO offer document, as it may vary across issues.
Example: SBI Card IPO Employee Quota Explained
IPO Employee Benefits
An IPO issue benefits the employees of the issuing company in the following ways.
- Employees are given the opportunity to buy the stock at a discounted price. This can help them earn higher profits. Note: The discounted price should not exceed 10% of the price offered to other categories of investors.
- Employees feel motivated and proud to be part of the company going public. This happens as listed companies gain awareness and become a brand.
IPO Employee Lock-up
There is no lock-in period for shares purchased under the employee reserved category. Like retail investors , employees can sell their shares as soon as the IPO is listed on the stock exchange(s).
IPO Employee Discount
The IPO employee discount is a discount on the share price offered to eligible employees of the issuing company . To qualify for this discount, the employee must apply for the IPO under the employee reservation quota. The definition of eligible employees, the amount of the discount, and the rules vary by IPO and are explained in the RHP document.
5. Eligible shareholders
Some IPOs have a special reservation quota for eligible shareholders of the parent company. The IPO Prospectus Document contains detailed information on eligibility, bid limits, allocation criteria and other shareholder reservation rules.
In most cases, individuals and HUF shareholders holding the share on a given day are eligible for the shareholder reserve quota.
Read SBI Cards IPO Shareholders Application for more details.
Note: Bids under the shareholder reserve category are subject to the rules set by the issuing company. These are explained in the IPO prospectus document. These may vary depending on the IPO.
Advantages of the shareholder preference category in an IPO
- It increases the chance of allocation.
- Companies can provide an additional discount in this category.
- A shareholder can invest upto the total number of shares offered in the shareholders reserved category.
- Applicants in the shareholder quota are also eligible to apply in other categories such as retail and employee.
- The cut-off price option is available only for applications up to Rs 2 lakhs in Mainboard IPOs. It is not applicable in SME IPOs.
Shareholder Quota Limits
A shareholder can invest up to the total shares offered in the shareholder reserved category. Some companies provide a discount on share prices for IPO applications up to Rs 2 lakh.
Lock-in period for shareholders
There is no lock-in period for shares purchased under the shareholder category. Like retail investors , shareholders can sell their shares as soon as the IPO is listed on the stock exchange(s).
6. Anchor Investors
Anchor investors are financial institutions that are allocated shares at a fixed price before the IPO is opened to the public. An IPO anchor investor must invest at least Rs 10 crore in a mainboard IPO and at least Rs 2 crore in a SME IPO . They have a lock-in period of 30 to 90 days from the date of allotment .
Rules for Anchor Investors
- Bidding for anchor investors begins one day before the start of the issue.
- Anchor investors cannot withdraw or modify their bids once placed.
- Anchor investors should pay the total bid amount at the time of application.
- Allocation to anchor investors will be completed on the same date of bid submission by anchor investors.
- Neither promoters/promoter group/trade bankers nor any person related to them can apply in the anchor investor category .
Role of the anchor investor in the IPO
- Higher subscription and higher number of applicants in the anchor investor category indicates greater confidence of institutional investors in the IPO.
- The presence of anchor investors confirms the authenticity of the IPO.
- Improves price discovery.
Anchor Investor IPO limit
- The minimum amount for IPO application by an anchor investor should be Rs 10 crores in Mainbaord IPO and Rs 2 Crore in SME IPO.
- 60% of QIB share can be allotted to anchor investors, with one-third of the share reserved for domestic mutual funds.
- An anchor investor may apply up to the total number of shares offered in the category reserved for anchor investors.
IPO Anchor Investor Lock-in Period
Shares purchased by anchor investors in the reserved anchor category are subject to a lock-in period of 30 days for 50% of the shares and 90 days for the remaining 50% of the shares from the allotment date .
IPO Date for Anchor Investors
The IPO offering for anchor investors begins and ends one day prior to the opening of the IPO to the public. Anchor investors have only one day to submit their bids. Allocation for anchor investors will also take place on the same day in the evening
Comparison of IPO investors in India
|
Investor Type |
Retail |
NII/HNI |
QIB |
Anchor |
|---|---|---|---|---|
|
Meaning |
Individuals, NRI and HUF who invest up to Rs 2 lakhs in mainboard IPO and 2 lots in SME IPO. |
Individuals, NRI, HUF, Companies, Corporate Bodies, and Trusts who apply for more than Rs 2 lakhs in mainboard IPO and 3 lots and more in SME IPO. |
Public financial institutions, banks, mutual funds and Foreign Portfolio Investors who invest money on behalf of their clients. |
Public financial institutions, banks, mutual funds and Foreign Portfolio Investors who invest money on behalf of their clients. |
|
Investment Limits |
Mainboard IPO: Up to Rs 2 lakh SME IPO: Only 2 lots |
Mainboard IPO: Up to Rs 2 lakh SME IPO: Only 3 lots |
No Minimum. Maximum up to the available QIB quota . |
Minimum of Rs 10 Cr ( Mainboard IPO ) and Rs 2 Cr ( SME IPO ). Maximum up to the available Anchor quota. |
|
Quota |
100% Book-building IPO - Not less than 35% Compulsory book-built Issue - Not more than 10% Fixed Price Issue - 50% of Net Issue |
100% Book-building IPO - not less than 15% QIB Route Issue - Not more than 15% (10% for investment more than Rs 10 lakhs and 5% for investments less than Rs 10 lakhs) Fixed Issue IPO - 50% of Net Issue (shares with QIB) |
100% book build issue - Not more than 50% Compulsory book-built issue ( QIB Route Issue) - At least 75% of the offer Fixed Issue - 50% of Net Issue (shares with NII) |
Maximum 60% of the QIB quota and 30% of the total issue size in book building IPOs. |
|
No lock-in period. |
No lock-in period. |
No lock-in period. |
30-days: 50% 90-days: 50% |
|
|
Withdrawal of Bid |
Permitted to withdraw the bids while the issue is still open. |
Not possible. Modification is possible if they want to upsize their bids. |
Not possible. Modification is possible if they want to upsize their bids. |
Not possible. |
|
Apply at the Cut-off price |
Mainboard: Yes SME IPO: No |
No |
No |
NA |
