Investors Categories
An investor is a person that allocates capital with the expectation of high future return and gain wealth from stock market. An investor who owns a shares is called shareholder.
Categories of Investors
As far as the IPO is concerned, the total share issue is normally divided into three parts for three categories of investors. These are,
(i) Institutional Investors:
Institutional investors such as banks, mutual funds, insurance companies, foreign institutional investors, hedge funds etc. are permitted to bid for the shares. Endorsement funds used by universities, churches. In this quota, Institutional investors help pension plans making investments on behalf of employees.
A maximum of 50 percent of the issue can be reserved for investors falling under the institutional investors category. Out of that 50 percent, 5 percent can be reserved for mutual funds. If you have a mutual fund plan or any kind of insurance plan, then you are really benefiting from expertise of institutional investors.
(ii) Non Institutional Investors:
Non Institutional investors are usually driven by personal financial plans, like retirement plan, children's education plan and others financing. Under the quota, resident
Indian individuals, HUFs, companies, NRI, societies and trusts whose share application size is more than Rs 1 lakh are allowed to bid. At least 15 percent of the total issue can be reserved for non Institutional investors. It is also called as the HIGH NETWORTH INDIVIDUAL quota.
(iii) Retail Investors:
Retail investors are non professional investors who buys and sells stocks through brokerage firm. Under the quota, only individuals, both residents and NRIs, along with HUFs are allowed to bid. The application size should be less than Rs 2 lakh. A minimum of 35 percent of the issue has to be reserved for retail investors.
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