Qualified Institutional Buyers
Also written Qualified Institutional Buyers (QIBs) · QIBs · Qualified Institutional Buyer
The closed list of institutional investors in the ICDR Regulations — SEBI-registered funds, non-individual FPIs, banks, insurers, large provident and pension funds — with special rights and limits in issues.
In plain language
Public issues treat investors differently according to how well they can look after themselves. A retail investor gets a reserved portion and a lot guarantee; an institution gets bigger allocations, access to QIPs and anchor books — and fewer protections, because it is presumed to do its own analysis.
Qualified Institutional Buyers (QIBs) are that institutional class. The term is not "any large investor": it is a closed list in the ICDR Regulations. An entity either appears on it or does not, however much money it has.
How it works
Who is a QIB (Chapter 4).
- a mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with SEBI;
- a foreign portfolio investor other than individuals, corporate bodies and family offices;
- a public financial institution;
- a scheduled commercial bank;
- a multilateral and bilateral development financial institution;
- a state industrial development corporation;
- an insurance company registered with IRDAI;
- a provident fund with a minimum corpus of Rs 25 crore;
- a pension fund with a minimum corpus of Rs 25 crore;
- the National Investment Fund set up by the Government of India;
- insurance funds set up and managed by the army, navy or air force;
- insurance funds set up and managed by the Department of Posts;
- systemically important non-banking financial companies.
What the status brings.
| Rule | Figure | Chapter |
|---|---|---|
| QIB portion of net offer, book-built issue under reg. 6(1) | Not more than 50%, of which 5% to mutual funds | 5 |
| QIB portion under reg. 6(2) (issuer fails profitability tests) | Not less than 75%, of which 5% to mutual funds; refund if not achieved | 5 |
| Anchor investor portion | Up to 60% of the QIB portion; anchor = QIB applying for Rs 10 crore+ (main board) or Rs 2 crore+ (SME) | 4, 5 |
| Reservation inside the anchor portion | 40%: "one-third (33%)" to domestic mutual funds and 7% to life insurers and pension funds | 4 |
| Bid revisions | QIBs may neither withdraw nor lower their bids at any stage | 4 |
| QIP | Only QIBs may be allotted | 4 |
| Underwriting | The 75% compulsorily allotted to QIBs under reg. 6(2) cannot be underwritten | 5 |
| Preferential issue to QIBs | Not exceeding five in number, priced at not less than the 10 trading days VWAP; none to a QIB that is a promoter or related to promoters | 6 |
A QIB is deemed related to the promoters if it has rights under a shareholders' or voting agreement with the promoters or promoter group, veto rights, or the right to appoint a nominee director.
A worked example
Illustrative figures. A book-built IPO has a net offer of Rs 1,000 crore.
If the issuer meets the profitability tests — regulation 6(1):
| Category | Rule | Amount |
|---|---|---|
| QIBs | not more than 50% | up to Rs 500 crore |
| — of which mutual funds | 5% of the QIB portion | Rs 25 crore |
| — of which anchors may take | up to 60% of the QIB portion | up to Rs 300 crore |
| Non-institutional investors | not less than 15% | at least Rs 150 crore |
| Individual investors | not less than 35% | at least Rs 350 crore |
If the full Rs 300 crore anchor portion is used, 40% of it is reserved: the workbook calls the mutual-fund share "one-third (33%)" — Rs 100 crore if read as one-third, Rs 99 crore if read as 33% — and 7% = Rs 21 crore for life insurers and pension funds. The workbook does not spell out how the separate 5% mutual-fund allocation interacts with an anchor book; do not assume a netting it does not state.
If it does not — regulation 6(2): QIBs get at least Rs 750 crore, retail individual investors not more than Rs 100 crore and NIIs not more than Rs 150 crore; and that Rs 750 crore cannot be underwritten.
Who gets in. A provident fund with a corpus of Rs 22 crore wants to bid as a QIB — it cannot; the floor is Rs 25 crore. A private equity AIF with a nominee director on the issuer's board is a QIB, but it is deemed related to the promoters and so cannot apply in the anchor book.
Why NISM asks about it
Chapter 1 (Introduction to the Capital Market) introduces QIBs among investor categories; Chapter 4 (Issue Management – Important Terms) gives the list twice, and its review question 1 — "Who is a Qualified Institutional Buyer?" — has the answer (d) All of the above (SEBI-registered MF and VCF, SEBI-registered FPI, scheduled commercial bank). Chapter 5 carries the 50% / 75% allocation rules and Chapter 6 the QIP and preferential-issue rules.
Expect list-membership questions (the Rs 25 crore corpus, the FPI exclusions, systemically important NBFCs) and allocation percentages.
Common exam traps
- Not every FPI is a QIB. Individuals, corporate bodies and family offices registered as FPIs are excluded.
- Provident and pension funds need a Rs 25 crore corpus. Below that, no QIB status.
- Only systemically important NBFCs are on the list.
- 50% is a ceiling under 6(1); 75% is a floor under 6(2). Mixing the direction ("at least 50%") is the classic error.
- The 5% for mutual funds is out of the QIB portion, and mutual funds may also compete for the rest of it.
- QIBs cannot withdraw or lower bids — only retail individual investors may withdraw or revise until closure.
- "One-third (33%)" is how the workbook describes the mutual-fund share of the anchor reservation; one-third and 33% are not the same number on a large book.
- Chapter 1 gives only an informal description ("domestic financial institutions, mutual funds, FPIs, etc"); the binding list is the one in Chapter 4.
Check yourself
1.An investor applying for how much in a single public issue transaction is classified as a retail investor?
- a)Up to Rs. Two lakh
- b)Up to Rs. One lakh
- c)Up to Rs. Five lakh
- d)Up to Rs. Ten lakh
Show the answer
Answer: (a) Up to Rs. Two lakh
Investors investing upto Rs. Two lakh in a single public issue transaction is termed as Retail investors.
The other categories: investors are broadly categorised as Retail Investors, Institutional Investors, and Non-Institutional Investors, where institutional investors comprise domestic financial institutions, mutual funds, FPIs, etc, commonly known as Qualified Institutional Buyers (QIBs).
Option D is not wrong in every context — but it belongs to a specific one. For tax-free, secured, redeemable, and non-convertible bonds, Retail individual Investors means those individual investors, Hindu Undivided Family (through Karta), and Non Resident Indians (NRIs), on repatriation as well as non-repatriation basis, applying for upto Rupees Ten lakhs in each issue and individual investors investing more than Rupees Ten lakhs shall be classified as High Net Worth Individuals.
So Rs. 2 lakh is the general public issue threshold; Rs. 10 lakh applies to those particular bonds, with the excess creating an HNI category.
Why the distinction matters to a merchant banker: allocation in a public issue is made by category, and the Registrars to an issue... assists body corporate to determine basis of allotment.
Investors as a class are described simply: investors are the persons who actually invest their funds in the securities offered by the issuer. And the market exists for them — they consist of investors, who are the backbone of the economy, issuers, regulatory bodies, and intermediaries.
On the other side stands the issuer: any company/corporation making an offer of securities... the people who actually approach the market, stating their specific objectives and collecting funds from the general public by offering securities.
2.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".
3.Under the ASBA facility, investors may apply using their bank account in:
- a)Both public issues and rights issues
- b)Public issues only
- c)Rights issues only
- d)Preferential issues only
Show the answer
Answer: (a) Both public issues and rights issues
Application Supported by Blocked Amount (ASBA) means an application for subscribing to a public issue or rights issue, along with an authorisation to self-certified syndicate bank to block the application money in a bank account.
And the workbook says it plainly: under ASBA facility, investors can apply in any public/ rights issues by using their bank account.
For public issues it is the only route: in case of all, public issues, the issuer shall accept bids using only ASBA facility in the manner specified by the Board.
For rights issues it is partly mandatory: in case of rights issues, where not more than one payment option is given, the issuer shall provide the facility of ASBA — and in case of qualified institutional buyers and non-institutional investors the issuer shall accept bids using ASBA facility only.
With eligibility conditions: a rights issue applicant may use ASBA only if the applicant is holding equity shares in dematerialised mode, has not renounced entitlement in part or in full, and is not a renouncee.
Option D is wrong because a preferential issue is a private placement — an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis — not a public application process.
The advantage of ASBA: his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalised, or the issue is withdrawn/failed.
And for retail applicants UPI now rides on top of it, introduced for applications in public issues by retail individual investors through intermediaries, cutting the time from closure to listing by upto 3 working days and enabling the T+3 timeline for public issues.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Anchor investorA 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.
- Retail Individual InvestorUnder the SEBI ICDR Regulations, 2018, an individual investor who applies or bids for specified securities for a value of not more than Rs 2 lakh.
- Preferential issueAn issue of specified securities by a listed issuer to a select person or group on a private placement basis — excluding public, rights, bonus and ESOP issues, QIPs, sweat equity and overseas depository receipts.
- 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.
- Qualified Institutions PlacementA fast route by which an already-listed company places eligible securities privately with Qualified Institutional Buyers, without the prospectus and timetable of a public issue.
- Net offer to publicThe offer of specified securities to the public excluding reserved portions (such as for employees) and any securities subscribed by the promoter group — the pool that is split among QIBs, NIIs and retail.
- DevolvementThe part of an under-subscribed issue that falls on an underwriter to take up — its underwriting commitment less the applications it procured — notified by the lead manager within ten days of closure.
- Eligible securitiesThe class of securities a listed company may offer in a Qualified Institutions Placement — equity shares, non-convertible debt instruments, and warrants or other convertible securities other than warrants themselves.
- Classes of InvestorThe workbook's three-way split of who buys securities — institutional, non-institutional and retail — sorted by the size of the cheque and the sophistication of the strategy.
- Basis of allotmentThe process of deciding how many shares each applicant in a public issue gets — all they applied for if the issue is not oversubscribed, otherwise a proportion worked out separately for each investor category.