What Are NIIs in IPOs? Meaning, Categories, Quota, and How They Work

When an IPO (Initial Public Offering) opens in India, subscription figures across investor categories like retail and institutional may draw attention. Between these two segments sits the Non-Institutional Investor (NII) category, which has evolved steadily over time. NIIs include applicants who participate with application sizes exceeding the retail threshold, without being classified as regulated institutional investors.

This article tells you more about the NII category, how it works, and its significance in the capital markets.

Table of contents

• Understanding non-institutional investors (NIIs) in the Indian market
• Categories of NIIs: Small NII (sNII) vs. Big NII (bNII)
• Challenges of direct NII participation in IPOs
• Accessing primary markets (IPOs) through mutual funds
• Why partner with Bajaj Finserv AMC for your investment journey?

Understanding non-institutional investors (NIIs) in the Indian market

As per regulatory norms, investors are classified into three categories: Qualified Institutional Buyers (QIBs), Retail Individual Investors (RIIs), and Non-Institutional Investors (NIIs). Non-Institutional Investors comprise investors who are neither Qualified Institutional Buyers nor Retail Individual Investors. This includes individuals applying for amounts exceeding Rs. 2 lakh, as well as non-individual entities such as Hindu Undivided Families (HUFs), companies, trusts, and corporate bodies that do not qualify as QIBs. Unlike QIBs, NIIs may not need to be registered with SEBI, yet their participation remains subject to SEBI's IPO allocation framework.

This category may include a range of participants, such as:

• Experienced individual investors
• Family offices
• Partnership firms
• Certain corporates that wish to take meaningful positions in new listings

SEBI earmarks 15% of the IPO issue size for NIIs, with actual allotment dependent on subscription levels within the category. As a middle segment between retail and institutional investors, NIIs contribute vitally to overall demand dynamics during the book-building process.

Also Read: How to Invest in Initial Public Offering (IPO)?

Categories of NIIs: Small NII (sNII) vs. Big NII (bNII)

To address differences in application sizes within the NII segment, SEBI introduced further sub-classification:

• Small NIIs (sNII): Applicants investing more than Rs. 2 lakh and up to Rs. 10 lakh
• Big NIIs (bNII): Applicants investing above Rs. 10 lakh

This segmentation is intended to improve proportional allotment outcomes and reduce concentration risk arising from very large applications dominating the category.

Challenges of direct NII participation in IPOs

Some challenges that direct IPO participation may involve are:

• Larger application amounts: Direct participation under the NII category involves higher application amounts, since investments must exceed Rs. 2 lakh at least. The applied amount is temporarily blocked in the investor’s bank account through the ASBA (Application Supported by Blocked Amount) mechanism until the IPO allotment process is completed.
• Allotment uncertainty: Oversubscription may happen in some cases, resulting in rejected bids.
• Research requirements: Investors have to independently assess offer documents, business risks, and valuation factors.
• Market sensitivity: Post-listing outcomes may be influenced by broader market conditions, liquidity cycles, sector trends, and global factors.

Accessing primary markets (IPOs) through mutual funds

Mutual funds operate under SEBI’s regulatory framework, which governs disclosures, risk management, and portfolio construction. Some mutual funds may participate in IPOs when such investments align with the scheme’s stated mandate and investment objective. In this structure, IPO exposure becomes one component within a diversified portfolio rather than a standalone decision.

Some investors may find this approach useful because:

• Portfolio concentration may be lower.
• Research and due diligence are undertaken as part of the fund’s investment process.
• Liquidity for open-ended schemes is available through Net Asset Value (NAV)-based transactions, subject to applicable exit conditions.
• IPO investments, if undertaken, are integrated within broader portfolio holdings.

Why partner with Bajaj Finserv AMC for your investment journey?

Bajaj Finserv AMC offers a wide range of mutual fund schemes, spanning equity, hybrid, debt categories, index funds and ETFs. The mutual fund company follows its proprietary InQuBe philosophy which combines superior information gathering with, quantitative analysis and insights from behavioural finance. It also offers seamless digital transactions and communication channels that allow investors to access scheme details, account statements, and updates. These facilities help investors remain informed while focusing on broader financial planning decisions.

Also Read: What is the Process of Selling IPO Shares

FAQs

What types of mutual funds may be suitable for High Net-Worth Individuals (HNIs) at Bajaj Finserv AMC?

HNIs may explore equity, hybrid, or debt categories depending on their financial goals, investment horizon, and comfort with market volatility. They can choose between actively and passively managed funds, depending on their goals and preferences.

How does investing in mutual funds provide diversified exposure to IPOs for NIIs?

If permitted by the scheme mandate, IPO investments may form part of a diversified portfolio, which reduces concentration in any single issue.

Can a direct NII participant in an IPO also invest in mutual funds offered by Bajaj Finserv AMC?

Yes. These approaches operate independently.