Non-Institutional Investors Meaning

If you are interested in investing in the financial market through initial public offerings, you may be familiar with the term NII. It refers to non-institutional investors, who are one of the three types of IPO investors, as categorised by the Securities and Exchange Board of India (SEBI). The other two types of IPO investors are retail investors and qualified institutional buyers. Now, let us quickly understand who non-institutional investors are.

Non-institutional investors’ meaning covers investors who apply for IPO shares with values exceeding Rs. 2 lakh. These investors are further classified into big non-institutional investors (bNII) and small non-institutional investors (sNII).

• NIIs are investors in IPOs who invest more than Rs. 2 lakh. They are divided into small NIIs (investing between Rs. 2 lakh and Rs. 10 lakh) and big NIIs (investing over Rs. 10 lakh).
• NIIs do not need to register with SEBI to participate in IPOs, have a minimum reservation portion in public issues, and face restrictions on bid withdrawals and pricing.
• If an IPO is not oversubscribed, NIIs receive full allotment; if oversubscribed, they may receive a minimum application size, which ensures broader participation among all applicants.

Small NIIs are investors who apply for IPO shares with a minimum value of Rs. 2 lakhs and a maximum value of Rs. 10 lakhs. Approximately a third of the total amount of shares to be allotted to NIIs is typically reserved for small NIIs.

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These are NIIs who place bids to secure shares with a value exceeding Rs. 10 lakhs. Usually, the remaining two-thirds of the shares that are allotted to NIIs are kept for big NIIs.

With the non-institutional investor meaning clarified, let us also understand the eligibility criteria for being classified as an NII. The following can be categorised as NIIs:
 

• Individual Indian residents
• Non-resident Indians (NRIs)
• HUFs - Hindu undivided families
• Indian resident companies
• Societies
• Corporate bodies
• Trusts
• Scientific institutions

Along with the basics like the non-institutional investor meaning, it is also important for investors in the market to understand the regulations and rules that govern NIIs in the market.

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One of the major features of NIIs is that they do not have to formally and officially register with SEBI if they want to bid for IPOs. As long as you have a Demat account, you can apply to any IPO as an NII.

Market rules also state that all public issues must set aside a portion for NIIs. In addition, this portion cannot be under 15% in proportion to the total issue size. However, every business has the flexibility to allocate more than 15%. For example, if the total lot size of a company IPO is 10 lakh shares, then 1.5 lakh shares have to be reserved for NIIs. But, the firm can reserve more for NIIs as well.

The bids that NIIs place cannot be cancelled or withdrawn, unlike retail investors. What’s more, these bids cannot be lowered but only revised upward until the IPO remains open.

Also read:IPO allotment status

NIIs do not have the option to apply for IPO shares at the stated cut-off price level and have to manually enter their bid in the price column.

By now, you know the non-institutional investor meaning and the features of NII investments. Let us also learn the process of share allotment to investors who fall into the NII category.

In situations where the sNII category of the IPO is not oversubscribed, all small non-institutional investors will secure a full allotment.

Contrary to this, if the portion reserved for sNIIs is oversubscribed, all the investors remain eligible to be allotted portions of either Rs. 2 lakh or even a little higher than that. This is not influenced by the applicant's initial bid.

If you want to learn about the process of allotment for bNII after knowing the non-institutional investor meaning, know that it is quite similar to the sNII allotment process in situations when the bNII portion of the IPO is not oversubscribed. In this case, all the applicants will be eligible for complete allotment.

However, if the IPO’s bNII portion is oversubscribed, the investors are still eligible for allotment of the minimum application size. The minimum application size taken into consideration here is Rs. 2 lakhs. You might wonder why the minimum size is considered to be Rs. 2 lakhs even though the minimum investment size in this category is higher than Rs. 10 lakhs; it is reduced in cases of oversubscription.

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Non-institutional investors play a crucial role in the initial public offering market in India, with specific guidelines and regulations set by the Securities and Exchange Board of India. NIIs are distinct from retail investors and qualified institutional buyers, characterised by their larger investment amounts, typically exceeding Rs. 2 lakh. This category is further divided into small NIIs and big NIIs based on the size of their investments. Understanding the non-institutional investor meaning, eligibility criteria, rules, and allotment processes is essential for anyone interested in participating in the IPO market as a non-institutional investor. By grasping these aspects, potential investors can navigate the complexities of IPO investments more effectively and strategically.