Overview
The capital market is made up of two integral segments: the primary market and the secondary market. In the primary market, new issuers raise fresh capital from investors. This enables companies to secure funds from the market participants directly.
On the other hand, the secondary market provides a platform for the trading of existing securities. An active secondary market is responsible for the growth of the primary market and capital formation where investors have the option to liquidate their investments when needed.
Companies seeking capital in the primary market do so through Bond Public Issues or private placements. A Bond Public Issue, unlike private placement, offers security directly to the public. It benefits both investors and businesses alike; investors can invest in high-quality businesses and businesses in turn can raise capital directly from the general public. Public Offerings have become a popular investment method.
Understanding the different investor categories involved is crucial for navigating the IPO landscape. This blog post will shed light on the four main participant types: Category I, Category II, Category III, and Category IV investors.
Types of Investors in Bond Public Issues
1. Category I Investor: Institutional Investors
Institutional Investors are large institutions with significant investment expertise and capital.
- Institutional Investors include public financial institutions, scheduled commercial banks, and Indian multilateral and bilateral development financial institutions that are authorized to participate in the NCDs;
- Provident funds and pension funds each with a minimum corpus of rupees 250 million, superannuation funds, and gratuity funds, which are authorized to invest in the NCDs;
- Alternative investment funds, subject to investment conditions outlined in the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012;
- Resident Venture capital Funds registered with SEBI:
- Insurance companies registered with the IRDAI;
- State industrial development corporations; Insurance funds set up by army, navy, or air force of the Union of India;
- Systematically important Non- Banking Financial Companies registered with the RBI or Non-Banking Financial Companies registered with the RBI and having total assets of rupees 5000 million or more as per the last audited financial statements;
- National Investment fund established by resolution no. F. No. 2/3/2005- DDII dated November 23, 2005, issued by the Government of India and published in the Gazette of India; and
- Mutual Funds registered with SEBI, etc.
Institutional Investors typically receive a large portion of the bonds due to their ability to provide stability and credibility to the offering. They conduct in-depth due diligence before investing, influencing overall market sentiment.
2. Category II Investor: Non-Institutional Investors
- Non-institutional investors include Companies within the meaning of Section 2(20) of the Companies Act, 2013;
- Statutory bodies/corporations and societies registered under relevant Indian laws and authorized to invest in the NCDs;
- Cooperative banks and regional rural banks;
- Trusts which include public/ private charitable/religious trusts, are authorized to invest in the NCDs;
- Scientific and/or industrial research organizations are permitted to invest in the NCDs;
- Partnership firms under the name of the partners;
- Limited liability partnerships established and registered according to the provisions of the Limited Liability Partnership Act, 2008 (No. 6 of 2009);
- Association of persons; and
- Any other incorporated and/ or unincorporated body of persons.
3. Category III Investor: High net-worth individuals (HNIs)
Resident Indian individuals or Hindu Undivided Families through the Karta applying for an amount aggregating to above rupees 1,000,000 across all options of NCDs.
4. Category IV Investor: Retail Individual Investors
This particular category is the most commonly chosen option when applying for an IPO. these investors include Resident Indian individuals or Hindu Undivided Families through the Karta applying for an amount aggregating up to and including ₹1,000,000 across all options of NCDs and shall include retail individual investors, who have submitted a bid for an amount not more than the UPI Application Limit in any of the bidding options in the Issue (including Hindu Undivided Families applying through their Karta and excluding NRIs) through UPI Mechanism.
Conclusion
In this blog, we have learned about the 4 major investor types in Bond Public Issue. To enhance your allotment chances, it is crucial to have a thorough knowledge of each category before subscribing to the public issue. Furthermore, investors have diverse needs and goals based on which they formulate their strategies. Hence, it is imperative to understand your requirements and objectives to tailor your investment strategy accordingly.
Disclaimer: Investments in debt securities/ municipal debt securities/securitized debt instruments are subject to risks including delay and/ or default in payment. Read all the offer-related documents carefully.
