Who Is a High-Net-Worth Individual (HNI)?
A High-Net-Worth Individual (HNI) is an investor who possesses investable financial assets (excluding primary residence and business assets) beyond a defined threshold. In the Indian context, different institutions use different thresholds:
| Definition Body | HNI Threshold |
|---|---|
| SEBI / Capital Markets | Applies for > ₹2 lakh in IPOs (Non-Institutional category) |
| Wealth Management industry | Investable assets > ₹5 crore |
| Private banking (UHNI) | Investable assets > ₹25 crore |
| Global definition (USD) | Net worth > $1 million (~₹8.3 crore) |
In everyday Indian stock market parlance, anyone who applies for more than ₹2 lakh in an IPO is treated as an NII (Non-Institutional Investor) — which is often interchangeably called HNI.
HNI Category in IPOs
In Indian IPOs, the NII/HNI category is defined as:
- Small HNI (sHNI): Applications between ₹2 lakh and ₹10 lakh
- Large HNI (bHNI): Applications above ₹10 lakh
SEBI revised IPO allotment rules in 2022 to split the NII category this way to prevent large HNIs from squeezing out smaller HNI applicants.
NII Quota in IPOs:
- 15% of net offer is reserved for NII/HNI category
- Allotment is proportionate (unlike retail which uses lottery)
- Oversubscription = proportional allotment (higher application = proportionally higher allotment)
Example: 150x NII oversubscription on a ₹10 lakh application = allotted ~₹6,667 worth of shares.
HNI/Wealth Management Products
HNIs typically have access to investment products not available to retail investors:
| Product | Description | Min Investment |
|---|---|---|
| Portfolio Management Services (PMS) | Discretionary stock portfolio managed by SEBI-registered PMS | ₹50 lakh |
| Alternative Investment Funds (AIF) | Private equity, hedge funds, real estate funds | ₹1 crore |
| Unlisted / Pre-IPO investing | Shares of companies before they list | ₹5–25 lakh |
| Structured products | Capital-protected or leveraged products from banks | ₹25 lakh |
| Direct bond investing | Corporate NCDs, government securities | ₹1–10 lakh |
Tax Planning for HNIs
HNIs pay higher taxes due to surcharges on income:
| Income Slab | Surcharge |
|---|---|
| ₹50 lakh – ₹1 crore | 10% surcharge on tax |
| ₹1 crore – ₹2 crore | 15% surcharge |
| ₹2 crore – ₹5 crore | 25% surcharge |
| Above ₹5 crore | 37% surcharge (reduced to 25% for LTCG post-Finance Act 2023) |
This makes LTCG-optimised equity strategies particularly important for HNIs — holding equities for 12+ months at 12.5% LTCG rate is significantly more tax-efficient than short-term trading at slab rates.
FAQ
Q: Can an HNI invest in retail IPO quota? A: No. Once an investor applies for more than ₹2 lakh in an IPO, they are classified as NII (HNI) and their application moves to the NII category — they cannot apply in the retail category.
Q: Is PMS better than mutual funds for HNIs? A: PMS offers customised portfolios and more direct control but comes with higher fees (management fees + profit sharing). For most HNIs, a mix of direct equity + index funds + selective PMS is optimal.
Q: Do HNIs get better IPO allotment rates? A: Not necessarily better rates. NII allotment is proportionate — everyone in the category gets the same percentage of their application amount allotted, regardless of how large the application is.
Disclaimer
This content is for educational and informational purposes only and does not constitute SEBI-registered investment advice. Always consult a qualified financial advisor before making investment decisions. Past performance is not indicative of future results.