Who are Retail Investors in an IPO

The Securities and Exchange Board of India (SEBI) has put IPO buyers into four groups: Qualified Institutional Buyers (QIB), High Net Worth Individuals (HNIs), Anchor buyers, and Retail Investors. In this piece, we’ll take a closer look at who retail investors in an IPO are and what else you should know about them. Let’s begin.

Who are Retail Investors in an IPO?

The SEBI defines “retail investors” as those who invest less than or equal to Rs. 2 lakhs in an IPO. Such financiers are typically low-net-worth people who lack the financial resources of huge organizations. Individuals who are both Indian citizens and permanent residents of other countries, as well as Hindu Undivided Families (HUFs), are all considered retail investors.

Things You Need to Know About Retail Investors in an IPO

Now that you know who retail investors in an IPO are, it’s time to learn some important details about them.

The amount that they can invest is capped

As you can see from the table above, the maximum amount an individual can invest in an IPO as a retail investor is Rs. 2 lakhs. Accordingly, anybody looking to invest more than Rs. 2 lakhs will no longer be considered retail investors. Instead, they will be labeled as High Net Worth Individuals (HNIs) and denied access to normal investors’ perks.

They enjoy special allocation

When a firm goes public for the first time, there is always a percentage of the issue set aside for “retail” investors. Typically, retail investors are given access to about 35% of the public issue.

This proportion, however, is only available to businesses that have consistently turned a profit for the past three years. A corporation that does not meet this requirement may only make available for retail investor subscription around 10% of the whole issue.

There’s no IPO lock-in period for retail investors

A lock-in period beginning on the date of listing on stock markets is standard for all Initial Public Offerings of firms. During the lock-in period, early investors such as angel investors, VCs, and firm insiders cannot sell their shares on the open market. In contrast to institutional investors, retail investors do not have to wait until the IPO lock-in period has ended before selling any shares they received as a result of applying for the issue.

Conclusion

I hope this helps clarify who the retail investors in an initial public offering are. If you want to be considered a retail investor in a future IPO, you should not invest more than Rs. 2 lakhs.

Be prepared for the initial public offering by opening a Demat account in your name. If you don’t already have a Demat account, you may open one with Motilal Oswal online in just a few minutes.