SEBI has tweaked the rules for the allotment of shares for HNIs (applicants in the NII category) from April 1st, 2022.
In an IPO, allotment of shares is made category-wise. Each category of investors is entitled to a reservation in the allotment process. The usual category-wise reservation is listed below:
| Category | Reservation |
|---|---|
| Retail Investors | 35% |
| NII | 15% |
| QIB | 50% |
SEBI has revised the category-wise reservation by sub-dividing the NII (Non-Institutional Investor) category into two parts - a. Applications between Rs. 2 to 10 lacs and b. Applications above Rs. 10 lacs. Investors in the NII category will get a reservation of 1/3rd of the total NII reservation. The new reservation schedule will look like this:
| Category | Reservation |
|---|---|
| Retail Investors | 35% |
| NII - Rs. 2 to 10 lacs | 5% |
| NII - above Rs. 10 lacs | 10% |
| QIB | 50% |
In the NII (2 to 10 lacs) category, the allotment will be done on a draw of lots basis (lottery basis like the retail category). In the NII (above 10 lacs) category, the allotment process will remain pro-rata.
For example, an IPO is subscribed 10 times in both the NII categories and you are applying for an IPO in the NII category:
- For 5 lacs - There is a 10% probability of you getting an allotment of Rs. 2 lacs. [Before the change in regulation, you would have received a firm allotment of shares worth Rs. 50 thousand]
- For 50 lacs - You will get an allotment of shares worth 5 lacs.
You can check the amendment (2022) of the SEBI ICDR (Issue of Capital & Disclosure Requirements) Regulations to learn more.
Note
In case a company that isn’t profitable for the last three financial years is launching an IPO, the minimum subscription required from the QIB category increases to 75% and Retail reduces to 10%. The NII category, in such cases, stays unchanged at 15%. Read more.