Introduction
Investors in initial public offerings (IPOs) are divided into four groups by the Securities and Exchange Board of India (SEBI): qualified institutional buyers (QIB), high net worth individuals (HNIs), anchor investors, and retail investors. In-depth information on retail investors in IPOs and other information pertaining to this group of investors will be covered in this blog. Let’s start.
The SEBI classifies individuals who make IPO investments of up to Rs. 2 lakh as retail investors. These investors are often modestly wealthy, self-employed people who lack the support of major businesses. Hindu Undivided Families (HUFs), non-resident Indians (NRIs), and resident Indian people all fall under the category of retail investors
Retail investment capacity is limited.
As you can see from the information above, a retail investor’s total investment in an IPO is limited to Rs. 2 lakhs. As a result, those who wish to invest above the 2 lakh Rs. would no longer be considered retail investors. They will not be eligible for any of the advantages enjoyed by regular investors; instead, they will be categorized as High Net Worth Individuals (HNIs).
Special benefits for retail investment
IPO application quota
A specified portion of every Initial Public Offering (IPO) of a firm is set aside just for retail investors. Typically, 35% of the public offering is set aside exclusively for retail investors.
but, only businesses with a track record of making profits regularly over the prior three years are eligible to use this proportion. If a firm doesn’t meet this requirement, it is allowed to allot around 10% of the total issue for subscription from retail investors.
Lock-in period in IPOs for retail investors
A lock-in period of six months from the date of the company’s listing on the stock markets is typically included in all Initial Public Offerings of firms. Early investors, such as angel investors, venture capitalists, and business insiders, are restricted from selling their holdings through the stock markets during this lock-in period.
The good news is that there is no IPO lock-in period for retail investors, so they are free to sell the shares that were allocated to them as a result of applying for the issue on the first day of the listing itself.
conclusion
Retail investors play an important role in the stock market. They are a diverse group of individuals with a maximum investment cap of Rs. 2 lakhs per IPO. SEBI has provisions in place to ensure their participation and protection, including reserved IPO quotas and exemptions from lock-in periods, making IPO investments accessible to a broader audience.
Frequently asked questions
Retail investors are individuals who invest their own money, while institutional investors are organizations that manage funds on behalf of others, such as mutual funds, pension funds, and investment banks.
Retail investors can manage risk through diversification (investing in different asset classes), setting stop-loss orders, conducting thorough research, and staying informed about market developments.
Retail investors can access a wealth of educational resources, including books, online courses, financial news websites, and our educational blog.
Yes, retail investors can invest in foreign markets by using international brokerage accounts or purchasing foreign-listed ETFs.
SEBI safeguards retail investors in India through strict regulations, promoting transparency and fairness in the financial markets, reducing the risk of fraud and misconduct.
