Anchor investor
Also written Anchor book · Anchor investor portion
A qualified institutional buyer allotted shares a day before a book-built issue opens — at least Rs 10 crore on the main board or Rs 2 crore on the SME exchange — under a discretionary, locked-in allocation.
In plain language
A book-built issue opens on a Monday with no demand visible and nothing to reassure a retail investor that serious money believes the price. The anchor book solves that. A day before the issue opens, the issuer allocates part of the institutional portion to large institutions on a discretionary basis, announces who took how much and at what price, and the market walks into the issue already knowing something.
An anchor investor is defined as a qualified institutional buyer who applies for a value of at least ten crore rupees in a mainboard book-built public issue, or at least two crore rupees in a book-built issue on the SME exchange.
The price of that early certainty is paid by the anchor, in lock-in and in a one-way price adjustment.
How it works
How much of the book. Up to sixty percent of the portion available for allocation to qualified institutional buyers may be allotted as the anchor investor portion.
How many investors — mainboard. The framework is sized in Rs 250 crore blocks. For an anchor portion exceeding Rs 250 crore, the maximum number of anchor investors per Rs 250 crore block was increased from 10 to 15; for every additional Rs 250 crore or part thereof, an additional 15 anchor investors may be allowed. The minimum allotment is Rs 5 crore per anchor investor. The earlier Category I (up to Rs 10 crore) and Category II (above Rs 10 crore and up to Rs 250 crore) sub-categories have been merged into a single category for allocations up to Rs 250 crore.
How many investors — SME exchange. A maximum of 2 for allocation up to Rs 2 crore; a minimum of 2 and maximum of 15 for allocation above Rs 2 crore and up to Rs 25 crore, subject to a minimum allotment of Rs 1 crore each; and above Rs 25 crore, a minimum of 5 and a maximum of 15 for the first Rs 25 crore plus an additional 10 for every further Rs 25 crore or part, again at Rs 1 crore minimum each.
Who is carved out of the anchor book. Forty per cent of the anchor investor portion is reserved — one-third (33%) for domestic mutual funds and seven per cent (7%) for life insurance companies registered with IRDAI and pension funds registered with PFRDA. Any undersubscription in the insurer and pension-fund bucket flows to domestic mutual funds.
The timetable. Bidding for anchor investors opens one day before the issue opening date. Allocation is completed on the day of the anchor bidding. The number of shares allocated and the price are given to the exchanges by the lead manager for dissemination before the issue opens.
The money. Anchors pay on application the same margin as other categories, and the balance within two days of the date of closure of the issue.
The one-way price adjustment. If the book-built price comes out higher than the anchor allocation price, anchors pay the difference. If it comes out lower, the excess is not refunded and the anchor is allotted at the price at which allocation was made. The asymmetry is the point: the anchor is paid for certainty in reputation, not in price.
Lock-in. 90 days on fifty per cent of the shares allotted and 30 days on the remaining fifty per cent, both from the date of allotment.
Who may not be an anchor. Neither the lead manager(s) nor any associate of the lead managers (with carve-outs for mutual funds, insurance companies, AIFs, pension funds and certain FPIs sponsored or promoted by such associates), nor any person related to the promoter or promoter group.
A worked example
A mainboard IPO of Rs 2,000 crore under the profitability route allocates not more than 50% to QIBs — Rs 1,000 crore. The issuer takes the anchor book to the maximum 60%:
Anchor investor portion = 60% × Rs 1,000 crore = Rs 600 crore
How many anchors may be admitted? Rs 600 crore is one Rs 250 crore block plus "every additional Rs 250 crore or part thereof" — a further Rs 250 crore and then Rs 100 crore, which is a part block and counts as one:
3 blocks × 15 = up to 45 anchor investors, each allotted at least Rs 5 crore
The reserved slices:
| Reservation | Share of the anchor portion | Rs crore |
|---|---|---|
| Domestic mutual funds | 33% | 198 |
| IRDAI life insurers + PFRDA pension funds | 7% | 42 |
| Total reserved | 40% | 240 |
| Open to other anchors | 60% | 360 |
If the insurer and pension bucket takes only Rs 26 crore, the unsubscribed Rs 16 crore flows to domestic mutual funds, not into the open pool.
The price asymmetry, in rupees. Allocation is made at Rs 620, so the anchors take Rs 600 crore ÷ 620 ≈ 96.77 lakh shares. The issue then closes and the book discovers Rs 645:
Anchors pay in addition: 96.77 lakh × Rs 25 = Rs 24.19 crore
Had the book instead discovered Rs 590, they would receive nothing back and would be allotted at Rs 620 — a notional Rs 29.03 crore worse off than the public. Same anchors, same shares, and the rule runs only one way.
And they cannot leave. 48.39 lakh shares locked for 90 days from allotment, 48.38 lakh for 30 days.
Why NISM asks about it
Chapter 4 (Issue Management – Important Terms), section 4.1 (17) Categories of Investor is where anchor investors are defined and the entire framework laid out, and Chapter 5 carries the allocation arithmetic it plugs into. The countable facts are examined directly: Rs 10 crore mainboard / Rs 2 crore SME threshold, 60% of the QIB portion, Rs 5 crore minimum allotment, 40% = 33% + 7% reservation, bidding one day before the issue opens, balance within two days of closure, and lock-in of 90 days on half and 30 days on half.
The conceptual question that recurs is the price asymmetry: the anchor pays up when the discovered price is higher and gets no refund when it is lower.
Common exam traps
- The workbook gives two different minimums for the mainboard anchor count. It says "a minimum of two (2) and a maximum of fifteen (15)" for allocations up to Rs 250 crore, and, describing the merged category, "the minimum number of anchor allottees shall be five (5) and the maximum fifteen (15)". The maximum of 15 and the Rs 5 crore minimum allotment are stated consistently; treat the minimum count as the unstable figure and read the question carefully.
- The one-way adjustment is the exam's favourite. Higher discovered price → anchor pays more. Lower discovered price → no refund.
- Sixty per cent is of the QIB portion, not of the issue. On a Rs 2,000 crore issue with a 50% QIB portion, the anchor book maxes out at Rs 600 crore, not Rs 1,200 crore.
- 40% reserved splits 33% + 7%, and the spillover runs only one way — from the insurer/pension bucket to domestic mutual funds.
- The lock-in is split 50/50 at 90 and 30 days from allotment, not a flat 30 days on everything.
- A QIB applying both as an anchor and in the non-anchor category is not making multiple applications. That is expressly permitted.
- The lead manager's own associates are barred, with narrow carve-outs for mutual funds, insurers, AIFs, pension funds and certain FPIs they sponsor or promote.
Check yourself
1.Which of the following is a Qualified Institutional Buyer?
- a)All of the above
- b)A SEBI registered mutual fund or venture capital fund
- c)A SEBI registered foreign portfolio investor other than individuals, corporate bodies and family offices
- d)A scheduled commercial bank
Show the answer
Answer: (a) All of the above
All three appear in the definition.
Qualified Institutional Buyers (QIBs) means (a) a public financial institution; (b) a scheduled commercial bank; (c) a mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with SEBI; (d) a foreign portfolio investor registered with SEBI, other than individuals, corporate bodies, and family offices; (e) a multilateral and bilateral development financial institution; (f) a state industrial development corporation; (g) an insurance company registered with the Insurance Regulatory and Development Authority of India (IRDAI); (h) a provident fund with minimum corpus of Rs. 25 crores; (i) a pension fund with minimum corpus of Rs. 25 crores; (i) National Investment Fund; (k) insurance funds set up and managed by army, navy or air force of the Union of India; (l) insurance funds set up and managed by the Department of Posts, India (m) systemically important non-banking financial companies.
Note the qualification inside limb (d). An FPI is a QIB other than individuals, corporate bodies, and family offices — so not every FPI qualifies.
And the Rs. 25 crore corpus applies to both provident funds and pension funds.
Why the category matters. A QIP is an issue to Qualified Institutional Buyers only, an anchor investor must be a qualified institutional buyer above the size threshold, and QIBs face a bidding restriction: the qualified institutional buyers and the non-institutional investors shall neither withdraw nor lower the size of their bids at any stage.
Anyone outside both the QIB list and the retail limit is an NII: investors who do not fall within the definition of the above two categories are categorized as "Non-Institutional Investors".
2.Which statement about anchor investors in a main board book built public issue is correct?
- a)Anchor investors may withdraw if the discovered price is lower than their allocation price
- b)Up to sixty percent of the QIB portion may be allocated to anchor investors, bidding opens one day before the issue opens, and fifty per cent of their shares are locked in for 90 days and the rest for 30 days
- c)Anchor allocation is made on a proportionate basis
- d)The anchor entry threshold on the main board is Rs. 2 crore
Show the answer
Answer: (b) Up to sixty percent of the QIB portion may be allocated to anchor investors, bidding opens one day before the issue opens, and fifty per cent of their shares are locked in for 90 days and the rest for 30 days
Up to sixty percent of the portion available for allocation to qualified institutional buyers shall be available for allocation/allotment ("anchor investor portion") to the anchor investor(s).
The bidding for anchor investors shall open one day before the issue opening date.
There shall be a lock-in of 90 days on fifty per cent of the shares allotted to the anchor investors from the date of allotment, and a lock-in of 30 days on the remaining fifty per cent of the shares allotted to the anchor investors from the date of allotment.
Option A reverses the price adjustment, which runs one way only. If the price fixed because of book building is higher than the price at which the allocation is made to the anchor investors, the anchor investors shall pay the additional amount. However, if the price fixed as a result of book building is lower than the price at which the allocation is made to the anchor investors, the excess amount shall not be refunded to the anchor investors and the anchor investor shall be allotted the securities at the same price at which the allocation was made to it.
Option C is wrong on method: allocation to the anchor investors shall be on a discretionary basis — proportionate allotment applies to the retail and non-institutional categories after their minimum floors.
Option D gives the SME figure. An anchor investor makes an application for a value of at least ten crore rupees in a public issue on the main board or at least two crore rupees in case of a public issue on the SME exchange.
The numbers permitted: for allocations up to ₹250 crore, a minimum of two (2) and a maximum of fifteen (15) anchor investors, plus an additional fifteen (15) for every additional ₹250 crore or part thereof, with a minimum allotment of ₹5 crore each.
And the money: the same margin which is payable by other categories of investors on application, with the balance, if any... paid within two days of the date of closure of the issue.
3.In a book built issue made under Regulation 6(2) — the QIB route — what is the allocation in the net offer?
- a)Not more than 10% to retail individual investors, not more than 15% to non-institutional investors and not less than 75% to QIBs, of which 5% goes to mutual funds
- b)Not less than 35% to individual investors, not less than 15% to NIIs and not more than 50% to QIBs
- c)Minimum 50% to retail individual investors and the rest to others
- d)Equal thirds to retail, non-institutional and institutional investors
Show the answer
Answer: (a) Not more than 10% to retail individual investors, not more than 15% to non-institutional investors and not less than 75% to QIBs, of which 5% goes to mutual funds
In an issue made through the book building process under sub-regulation (2) of regulation 6, the allocation in the net offer category shall be as follows: (a) not more than ten percent to retail individual investors; (b) not more than fifteen percent to non-institutional investors; (c) not less than seventy-five percent to qualified institutional buyers, five percent of which shall be allocated to mutual funds.
Option B gives the Regulation 6(1) table — not less than thirty-five percent to individual investors (who applies for minimum application size) · not less than fifteen percent to non-institutional investors · not more than fifty percent to qualified institutional buyers, five percent of which shall be allocated to mutual funds.
Option C gives the non-book-built table: minimum fifty percent to retail individual investors; and... remaining to: (a) individual applicants other than retail individual investors; and (b) other investors including corporate bodies or institutions.
Why 75% here. The issuer took the QIB route precisely because it undertakes to allot at least seventy-five percent of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so. The allocation table simply implements that undertaking.
Two provisos apply to both book built tables: the unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated to applicants in any other category, and in addition to five percent allocation available in terms of clause (c), mutual funds shall be eligible for allocation under the balance available for qualified institutional buyers.
Within the NII portion: one third of the portion available to non-institutional investors shall be reserved for applicants with application size of more than two lakh rupees and up to ten lakh rupees and two third... for applicants with application size of more than ten lakh rupees.
And anchors come out of the QIB share: the issuer may allocate up to sixty percent of the portion available for allocation to qualified institutional buyers to anchor investors.
Where this is taught
Free preparation for NISM Series IXRelated terms
- ASBAThe mandatory payment mechanism for public and rights issues, in which your bank blocks the application money in your own account and debits it only if you actually get an allotment.
- Non-Institutional InvestorThe residual public-issue category for applicants who are neither retail individual investors nor qualified institutional buyers — in practice anyone bidding for more than Rs 2 lakh without being a QIB.
- Primary marketThe market where an issuer sells securities to investors for the first time and receives the money itself — the "new issue market", as against the secondary market where investors trade among themselves.
- Qualified Institutional BuyersThe institutional investor category comprising domestic financial institutions, mutual funds, FPIs and similar entities.
- Red Herring ProspectusThe offer document used in a book-built public issue, containing every disclosure a prospectus carries except the final price or number of shares, filed with the Registrar before the issue opens.