Small investors can now put Rs 1 lakh in IPOs

Retail investors can now invest up to Rs 1 lakh in company IPOs.

The Securities and Exchange Board of India has raised the allocation of shares for retail investors in book-built issues to 35 per cent from the current level of 25 per cent.

The definition of a retail investor has now been amended to include those investing up to Rs 1 lakh in such initial public offerings, up from the prevailing Rs 50,000.

In sweeping changes made to the depositor and investor protection guidelines, Sebi has also reduced the bidding, granting an option to listed issuers to disclose the price band or floor price one day before the opening of bids, while ensuring relevant and uniform bid-data displays on the websites of stock exchanges.

With the increase in allocation size to retail investors, the allocation to non-institutional investors has been reduced to 15 per cent from the current 25 per cent. The allocation to qualified institutional buyers (QIBs) remains at 50 per cent.

Where it is mandatory for QIBs to be allocated 60 per cent of the shares issued, the allocation for retail investors will be 30 per cent. However, this is a transitory provision since ultimately, all allocations will be harmonised, in line with the amendments made.

The bidding period also stands reduced to three working days from the current 5-10 days. The existing guidelines require all issuers (whether listed or unlisted), making a public issue through the book built process to disclose the price band or floor price in the Red Herring Prospectus.

Sebi has decided to give an option to listed issuers to either disclose the price band in the offer document or to disclose the price band or floor price at least one day before the opening of bids.

In order to ensure dissemination of relevant information to the public, Sebi is amending the guidelines to improve the contents of and to ensure uniformity in data display on the websites of the stock exchanges and to ensure that data are available for a further period of three days after the closure of the bids or issue.

The amendments made with respect to retail investors will be applicable to public issues whose draft offer documents are filed on or after April 4, 2005.