Difference Between Retail, Non-Institutional, Anchor, and QIB Bidders in IPOs

In an Initial Public Offering (IPO), understanding the different categories of investors is crucial to decoding how shares are allocated and how demand is built up during the offering process. In India, IPOs follow the book-building mechanism where the issue is divided among various investor classes — Retail Investors, Non-Institutional Investors (NIIs/HNIs), Qualified Institutional Buyers (QIBs), and Anchor Investors.

Each category plays a distinct role in shaping the demand, pricing, and overall success of the IPO.

1. Qualified Institutional Buyers (QIBs)

QIBs are institutional investors registered with SEBI and include:

• Mutual Funds

• Insurance Companies

• Foreign Institutional Investors (FIIs)

• Sovereign Wealth Funds

• Pension and Endowment Funds

• Banks and Financial Institutions

Key Features:

• Allocation: 50% of the total issue in a book-built IPO is reserved for QIBs.

• Price Discovery: QIBs largely drive the price discovery process and often influence investor sentiment in other categories.

• Application Margin: They only need to deposit 10% of the application amount upfront, which improves capital efficiency.

• Discretionary Allotment: Shares are allocated based on the discretion of the issuer and the lead managers.

2. Anchor Investors

A sub-category within QIBs, Anchor Investors are allotted shares a day before the issue opens to the public. Their participation helps build early confidence in the IPO.

Key Features:

• Must invest ₹10 crore or more in the IPO.

• Allotment is done at a fixed price, decided during book building.

• Their names are disclosed publicly, adding credibility and attracting other investors.

3. Retail Individual Investors (RIIs)

Retail investors are individuals who apply for up to ₹2 lakh worth of shares in a public issue.

Key Features:

• Allocation: 35% of the issue is reserved for retail investors.

• Application Process: Can apply online or offline using their demat and bank accounts.

• ASBA Facility: Applications are made through ASBA (Application Supported by Blocked Amount), which blocks funds in the bank account rather than debiting them upfront.

• Popular Sentiment Gauge: Retail demand reflects mass-market interest and retail-level confidence in the IPO.

4. Non-Institutional Investors (NIIs) / High Net-Worth Individuals (HNIs)

These are individual or corporate investors who apply for more than ₹2 lakh worth of shares. This category includes:

• HNIs

• Corporates

• NBFCs

• Private Limited Companies

• Family Offices

Key Features:

• Allocation: 15% of the issue is reserved for this category.

• IPO Funding: Many NIIs use IPO financing from banks or NBFCs. Because of this, they aim for high listing gains to cover funding costs.

• More Informed Investors: Often considered to be better informed and quicker to act based on price movements and IPO valuations.

How the Investor Categories Interact in an IPO

Each category plays a unique role:

• QIBs and Anchor Investors set the tone for the IPO and help in determining the final price band.

• Retail investors bring in mass participation and lend credibility and depth to the ownership structure.

• HNIs/NIIs enhance the demand-side strength and liquidity post-listing.

Undersubscription in one category can be compensated by oversubscription in another, as permitted by SEBI norms.

Investor Categories in Fixed Price IPOs

Though less common today, fixed price IPOs operate differently:

Key Distinctions:

1. Investor Quota:

   • 50% reserved for retail investors applying below ₹1 lakh.

   • 50% for applicants investing above ₹1 lakh (NIIs and institutions).

2. No ASBA for Retail:

   • Unlike book-built IPOs, fixed-price issues don’t always support ASBA, requiring upfront payment.

3. Full Upfront Payment:

   • All investor classes must pay 100% of the application amount, making it less capital-efficient, especially for QIBs.

Because of these limitations, most companies and investors now prefer book-built IPOs, which offer greater flexibility, efficiency, and pricing transparency.

Conclusion

Understanding the classification of IPO investors — Retail, QIBs, Anchor Investors, and HNIs — is essential for gauging the demand dynamics and pricing strategy of any public issue. Each segment brings distinct value:

• QIBs and Anchors for price discovery and credibility

• HNIs for market depth and funding-driven demand

• Retail investors for broad-based ownership and stability

Together, they make up the ecosystem that determines the success of an IPO — both during the offering and in the post-listing phase.