IPO Terminology Decoded: QIB, HNI, NII, Price Band, Lot Size, GMP, DRHP & More

IPOs come with their own vocabulary. Before you apply for even a single IPO, you need to understand what you are reading, price band, lot size, cut-off price, QIB, GMP, DRHP. This guide explains every major term, with real numbers and examples.

Price Band: The Price Range Set by the Company

The price band is the range of prices within which you can place your IPO bid. It has a floor price (the lowest acceptable bid) and a cap price (the highest acceptable bid). Your bid must fall somewhere in this range.

Example: Swiggy IPO had a price band of Rs 371 to Rs 390. Retail investors who wanted to apply had to bid between those two values. Most chose the cap price of Rs 390 to maximise their chances of allotment.

SEBI rules state that the cap price cannot exceed 120% of the floor price. So if the floor is Rs 100, the cap cannot go beyond Rs 120. This keeps the band reasonably tight.

The company, along with its lead managers, decides the price band based on business valuation, comparable listed peers, and early demand signals gathered during the pre-IPO roadshow.

Lot Size: The Minimum Units You Must Apply For

You cannot apply for a single share in an IPO. Applications must be submitted in lots, and each lot contains a fixed number of shares. One lot is the minimum, you can apply for more, but always in whole lot multiples.

SEBI requires that the minimum application value for retail investors fall between Rs 10,000 and Rs 15,000. The lot size is set to meet this rule. If the IPO cap price is Rs 500, the lot size will be around 20 to 30 shares, placing the minimum application in that Rs 10,000 to Rs 15,000 range.

Example: Hyundai India IPO had a cap price of Rs 1,960 and a lot size of 7 shares. Minimum application value: 7 x Rs 1,960 = Rs 13,720. This sat neatly within SEBI's prescribed range.

The retail category ceiling is Rs 2 lakh per applicant per IPO. So if one lot costs Rs 13,720, you can apply for a maximum of 14 lots (14 x Rs 13,720 = Rs 1,92,080 — within the Rs 2 lakh limit).

What is Face Value in an IPO?

Face value is the nominal value printed on a share certificate, the original value assigned to the share when the company was formed. It is also called par value. Indian companies most commonly use Rs 1, Rs 2, Rs 5, or Rs 10 as face value.

Face value has no direct connection to what you pay in an IPO. The IPO issue price is what investors actually pay. The difference between the issue price and the face value is called share premium, and it goes into the company's share premium reserve on its balance sheet.

Example: Tata Technologies had a face value of Rs 2 per share but was issued at Rs 500 per share. That means Rs 498 per share was recorded as share premium, not face value.

Face value matters when you hear about stock splits, bonus shares, or dividends declared as a percentage of face value. A 5:1 stock split on a Rs 10 face value share gives you 5 shares of Rs 2 face value each, the total value stays the same.

Cut-Off Price: Apply Without Picking a Specific Price

When you select a cut-off price, you are telling the exchange: allocate shares to me at whatever the final issue price turns out to be. You do not need to pick a number, you are agreeing to pay the final price, whatever it is.

Here is the process: during the subscription window, your bank blocks the full amount at the cap price. Once the IPO closes, the company finalises the issue price (usually the cap price for most IPOs). If you select a cut-off, your application remains valid at that price.

Cut-off price is available only to retail individual investors (RIIs) and company employees applying through the employee reservation quota. QIBs and HNIs must specify a price in their bids.

Should you always choose a cut-off? Yes, almost always. If you bid at a specific price below the final issue price, your application gets rejected outright. Choosing a cut-off removes that risk entirely.

What is QIB in IPO? (Qualified Institutional Buyer)

A Qualified Institutional Buyer (QIB) is a large, regulated institutional investor that SEBI has classified as sophisticated enough to evaluate IPO investments independently, without the safeguards extended to retail investors.

SEBI's definition of QIBs includes: mutual funds, foreign portfolio investors (FPIs), insurance companies, scheduled commercial banks (SCBs), SEBI-registered venture capital funds, state industrial development corporations, and provident funds with a corpus above Rs 25 crore.

In most regular book-built mainboard IPOs, up to 50% of the net offer is reserved for QIBs, at least 15% for NIIs/HNIs, and at least 35% for retail investors. However, some IPOs follow a QIB-heavy route where QIB allocation can be higher and retail allocation can be lower.

Within this 50% QIB quota, anchor investors get first priority, they are allotted shares one day before the IPO opens. The remaining QIB shares are allocated once the subscription window closes.

QIBs cannot use a cut-off price, meaning they must bid at a specific price. When the QIB category is oversubscribed, allotment is done proportionally based on their bid amounts.

Example: Bajaj Housing Finance's IPO saw the QIB category oversubscribed over 200 times. Anchor investors alone included 91 institutions that collectively invested Rs 1,758 crore at Rs 70 per share, one day before the public subscription opened.

What is HNI (NII) in IPO? (High Net Worth / Non-Institutional Investor)

An HNI (High Net Worth Individual) is also called a Non-Institutional Investor (NII) in SEBI's official terminology. This category covers any individual or entity that bids for more than Rs 2 lakh worth of shares in an IPO, above the retail limit but below the institutional threshold.

15% of shares in a mainboard IPO are reserved for NIIs. In October 2022, SEBI split this category into two sub-buckets:

• sNII (small NII): Applications between Rs 2 lakh and Rs 10 lakh. Gets one-third of the NII quota.
• bNII (big NII): Applications above Rs 10 lakh. Gets two-thirds of the NII quota.

SEBI introduced this split because large HNI bids were overwhelming smaller HNI applicants before 2022. The separate buckets give smaller HNIs a fairer shot.

Both sNII and bNII allotment is lottery-based and not proportional. A larger bid does not improve your chances of winning. Each valid applicant gets one lottery draw for one minimum lot.

Many HNIs fund their IPO applications by borrowing from brokers or NBFCs, betting that listing gains will cover the interest cost. This is called IPO financing.

What is RII in IPO? (Retail Individual Investor)

A Retail Individual Investor (RII) is any individual whose total IPO application value, across all bids in a single IPO, is Rs 2 lakh or less. This is the category most first-time investors fall into.

In most regular book-built mainboard IPOs, at least 35% of the net offer is reserved for retail investors. This is the largest single quota across all three categories. However, this may be lower in IPOs that follow the QIB-heavy route, where retail allocation can be around 10%.

Allotment for retail is purely by lottery. The system first counts how many retail applicants submitted valid bids for at least one lot. If that number exceeds the lots available, a computerised draw picks the winners. Every winner gets exactly one lot, applying for more lots does not increase your chances of winning.

Example: If 10 lakh retail investors apply for an IPO where only 5 lakh lots are available for retail, then 5 lakh applicants win the draw and each gets one lot. The other 5 lakh applicants get nothing, and their blocked amounts are released within T+2 of the close date.

Practical tips: always bid at cut-off price, submit your application early to avoid last-minute UPI failures, apply separately through eligible family members' demat accounts (each PAN is one application), and use UPI amounts under Rs 5 lakh for smoother processing.

GMP (Grey Market Premium): The Unofficial Pre-Listing Signal

GMP stands for Grey Market Premium. It is the price at which IPO shares and applications trade informally before the company lists on the stock exchange. This market exists entirely outside SEBI's regulatory framework, no rules, no oversight, no guarantees.

How to read GMP: if an IPO's issue price is Rs 500 and the GMP is Rs 200, the implied listing price is Rs 700. That translates to a 40% implied premium over the issue price. A positive GMP means the market expects a listing above the issue price; a negative GMP suggests the opposite.

Should you make decisions based on GMP? No. GMP is not regulated, not transparent, and can be manipulated by a handful of traders. It reflects speculative sentiment more than company fundamentals. Several IPOs with strong GMP have listed flat or negative, and vice versa.

For a deeper understanding of how grey market pricing actually works, how to track it, and its real predictive accuracy, refer to the dedicated GMP chapter in this series.

What is Subscription / Oversubscription in IPO?

Subscription refers to how many times the total demand for an IPO exceeds the number of shares being offered. A 1x subscription means demand exactly equals supply. A 50x subscription means 50 times more applications came in than there were shares available.

Formula: Subscription rate = Total shares applied for / Total shares on offer

Subscription is tracked separately for each investor category. Here is what the numbers mean in practice:

Example: Hyundai India's IPO saw retail subscription of 0.51 times, meaning the retail category was not fully subscribed. QIB and NII categories, however, were significantly oversubscribed, showing that institutional investors had a much more positive view than retail applicants.

Live subscription data is published by BSE and NSE during each bidding day and finalised after the IPO closes. You can also check it on INDmoney.

DRHP: The IPO Bible You Must Skim

DRHP stands for Draft Red Herring Prospectus. It is the comprehensive disclosure document a company files with SEBI before launching its IPO. Think of it as the company's full official story, covering the business model, financials, risks, and what the money raised will be used for.

A typical DRHP covers:

• Business overview and revenue model
• Audited financial statements for the last three fiscal years
• Risk factors — all material risks the company is legally required to disclose
• Objects of the issue — what the IPO proceeds will specifically be used for
• Promoter background, shareholding structure, and related-party transactions
• Ongoing legal and regulatory proceedings

For a first-time investor, the most important section is Risk Factors. Read it. If a company has heavy debt, dependence on one or two large customers, regulatory uncertainty, or recurring losses, it will appear here. Companies are legally bound to disclose all material risks.

After SEBI reviews and issues observations, the company files the final Red Herring Prospectus (RHP) just before the IPO opens. Both DRHP and RHP are publicly available on SEBI's website at sebi.gov.in.

What is ASBA in IPO?

ASBA stands for Application Supported by Blocked Amount. It is the standard mechanism for IPO applications in India. Your application money is blocked in your bank account, not actually taken out, until shares are allotted.

Here is how the process works:

• You submit an IPO application through your broker's app (say INDmoney).
• Your bank places a block on the required amount in your savings account. The money does not leave your account.
• You continue to earn interest on this blocked amount (in most savings accounts).
• If you are allotted shares, the blocked amount is debited and shares are credited to your demat account.
• If you are not allotted shares, the block is removed automatically, typically within T+2 after allotment.

For UPI-based applications (available for amounts up to Rs 5 lakh), the process includes an additional step: after submitting your application, you receive a UPI mandate request on your payment app (INDmoney, PhonePe, GPay, BHIM, etc.) that you must approve. This triggers the bank to block the funds.

ASBA is mandatory for all IPO applications in India. You cannot pay via cheque or direct bank transfer.

What is an Anchor Investor in IPO?

An anchor investor is a large institutional investor allotted shares by the company one day before the IPO opens to the general public. The purpose is to signal institutional confidence and stabilise market sentiment ahead of the public subscription.

Key rules governing anchor investors:

• Minimum application size: Rs 10 crore
• Anchor investors can receive up to 60% of the QIB quota
• They bid at a single price, typically the cap price of the IPO
• Lock-in period: 50% of the anchor allotment is locked for 30 days after listing; the remaining 50% is locked for 90 days

Example: Bajaj Housing Finance's IPO attracted 91 anchor investors who together invested Rs 1,758 crore at Rs 70 per share, a full day before the public subscription opened. The strong and well-known anchor list was widely cited as a positive signal for the IPO.

When well-known mutual funds and FPIs are in the anchor list, it generally means sophisticated investors believe in the valuation. A weak or thin anchor list can be a yellow flag worth noting.

Issue Size: Total Capital Being Raised

Issue size is the total amount of money an IPO raises. It is made up of two possible components: a Fresh Issue and an Offer for Sale (OFS). An IPO can have one or both.

Example: NTPC Green Energy's IPO was a massive ₹10,000 crore issue, and it consisted entirely of a Fresh Issue with zero OFS. All the proceeds went directly to the company to repay debt and fund new renewable energy projects, meaning promoters were not cashing out.

A large OFS relative to a fresh issue sometimes raises questions: it can signal that existing investors are using the IPO as an exit. A pure fresh issue is generally seen more positively because the company is raising capital to grow rather than letting early investors exit.

What is Bid Price in IPO?

Bid price is the specific price at which you are willing to buy shares. It must fall within the price band. In a book-building IPO, you can enter up to three different price-quantity bids.

Your three bid options:

• Bid 1: A specific price within the band, and a specific number of lots
• Bid 2: A different price and lot combination
• Bid 3: Cut-off price (highly recommended for retail investors)

For most retail investors, using cut-off price for all bids is the simplest and safest approach. You avoid the risk of getting rejected for bidding below the final issue price.

You can revise your bid (change price or quantity) any time before the IPO window closes on the final day. For mainboard IPOs, retail bids below ₹2 lakh can usually be cancelled or modified during the bidding window, subject to broker and exchange rules. However, HNI/NII bids and SME IPO applications may have stricter cancellation rules. Once shares are allotted and listed, investors can exit only by selling after the stock lists and starts trading on the exchange..

Allotment & Basis of Allotment: How Shares Are Distributed

Allotment is the process of assigning shares to successful applicants after the IPO closes. The basis of allotment document, published by the registrar, explains exactly how many shares each category received and how the draw or proportion was calculated.

How allotment works, by category:

• Retail (RII): Pure lottery. Each valid applicant gets one draw. Every winner gets exactly one lot. Applying for more lots gives you no advantage — it only increases the amount blocked.
• NII / HNI: Also lottery-based for both sNII and bNII (since SEBI's October 2022 rule change). Each winner gets one lot. Large bids do not give better odds.
• QIB: Proportional allotment at the discretion of the company and its Book Running Lead Managers. Larger bids generally receive proportional allocation.

The basis of allotment is published on T+1 after the IPO closes (under the T+3 listing framework). You can check it on the NSE / BSE website or the registrar's website, either Link Intime or KFin Technologies, by entering your PAN number or application number.

Listing Date vs IPO Close Date: The Timeline

SEBI shortened the IPO listing timeline from T+6 to T+3, with the T+3 framework becoming mandatory for all mainboard IPOs from December 2023. Here is what happens from the day the IPO closes to when trading begins:

T refers to the IPO close date. If an IPO closes on Monday and there are no public holidays in between, listing happens on Thursday.

Refunds for blocked amounts are processed automatically by your bank. You do not need to raise a request or follow up with your broker.

Book Building vs Fixed Price Issue

Companies can price their IPO in one of two ways: book building (price discovered through investor bids) or fixed price (price decided by the company before applications open). Almost all mainboard IPOs today use book building.

If you are applying for any IPO you read about in financial news today, it is almost certainly a book-building issue.

BRLM & Registrar to the Issue

Two key intermediaries manage the IPO process from start to finish: the Book Running Lead Manager (BRLM) and the Registrar to the Issue.

Book Running Lead Manager (BRLM):

• The investment bank or merchant banker the company appoints to manage the entire IPO.
• Handles DRHP filing with SEBI, roadshows with institutional investors, order book management, and final issue price determination alongside the company.
• Coordinates listing on NSE and BSE and is responsible for the prospectus documents.
• Major BRLMs in India: Kotak Mahindra Capital, Axis Capital, ICICI Securities, JM Financial, IIFL Capital. Large IPOs often have multiple BRLMs (co-BRLMs).

Registrar to the Issue:

• The SEBI-registered entity that handles the application processing, allotment computation, refund processing, and demat credit.
• Two dominant registrars in India: Link Intime India (now part of the BSE Group) and KFin Technologies.
• Once an IPO closes, you go to the registrar's website to check your allotment status using your PAN number, application number, or demat account number.

Quick Reference: IPO Terms at a Glance

Here is a summary of every key term covered in this guide: