Qualified Institutional Placement (QIP): Meaning & Benefits
- 10th February 2026
- 05:00 PM
- 10 min read
The Qualified Institutional Placement or QIP is the means or mechanism that publicly listed companies in India use to issue convertibles, shares, etc, which are exclusively for Qualified Institutional Buyers. These QIBs include mutual fund houses, venture capital funds, banks and more.
Compared to traditional IPOs or FPOs, it acts as a cost-saving alternative for companies. Issuing equities and convertibles through this process also requires minimal dilution of control of a respective company’s management against other methods.
Read this blog and understand the QIP meaning in more detail, its benefits and more and also note why companies prefer it.
What is a QIP or a Qualified Institutional Placement?
QIP is a way of fundraising that public companies use to issue shares, convertible debentures, and other securities targeted for the QIBs. The SEBI introduced this process in 2006 to lower the dependency of Indian companies on foreign funding.
Before the introduction of it, Indian companies used to rely on instruments like American Depository Receipts (ADRs), Foreign Currency Convertible Bonds (FCCBs), Global Depository Receipts (GDRs), etc. Thus, QIPs have opened the avenue for Indian companies to raise funds domestically.
Apart from that, to allocate shares and other securities to QIBs, Follow-on Public Offers (FPOs) require higher documentation. Similarly, Initial Public Offering (IPOs) generally involve an expensive process. Thus, this process streamlined the issuance of securities for institutional buyers, reducing time and overall costs.
This mechanism follows several sub-processes to complete the issuance of securities to QIBs. They involve an approval process, documentation, pricing, bidding, share allotment, and ultimately listing on stock exchanges.
Who are QIPs?
To have an in-depth understanding of the Qualified Institutional Placement, you must first learn what a Qualified Institutional Buyer or QIBs mean, as this process is solely intended for them. These are the institutions or entities that are only eligible to participate in QIPs.
Especially in the context of the stock market, QIBs are the entities that have a higher financial capacity and investment capital. With their substantial investment capacity, such entities bring in stability, liquidity, etc. Also, their market expertise allows them to carefully assess and invest across capital markets.
Such entities are usually banks, mutual funds, pension funds, insurance companies, venture capital funds, and foreign portfolio investors.
Aside from that, the stock exchanges in India consider QIBs as legal entities too, which means such institutions or entities require less regulatory oversight from centralised authorities.
Why Do Companies Use QIP to Allocate Shares to QIBs?
Now that you know what are QIPs, you must make a note of the reasons mentioned above for why companies opt for such a way in detail. Here is a breakdown for those reasons:
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Acts as an alternate for Foreign Fundings
Switching to a qualified institutional placement allows public companies to issue shares and other securities with a reduced dependency on foreign funding. Thus, it keeps the process domestic, saving on costs and lowering the complexities associated with GDR or ADR issuance and FCCBs.
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Faster Processing and Lower Regulatory Burden
A QIP makes the shares and other asset issuance much faster. Compared to traditional methods, for example, the Follow-on Public Offers or FPOs, this process enables public companies to issue and allocate securities to QIBs with less documentation and faster approvals, which reduces the processing time.
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Focused Investments
This process is exclusive to only QIBs and assists public companies in attracting sophisticated investors. As institutions like banks, fund houses, etc, have higher capital and market knowledge, they bring stability and liquidity. This way, the process attracts only informed investors with enough expertise, lowering fluctuations such as in retail investments.
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Less Expensive Compared to IPOs
IPOs require processes which include roadshows, filing a prospectus, regulatory approvals, etc, which increase overall costs. For example, a mainboard IPO including underwriter charges, audit, legal, marketing, etc, might exceed INR 3 crore. As institutional placement generally costs less than a public issuance, companies opt for it to allocate assets to QIBs.
What is the Working Process of QIPs?
Now that you know why public companies opt for institutional participation for qualified buyers, you must learn how this process works and what steps a company must follow to complete it. Here is a detailed breakdown:
Step 1: The Approval
A publicly listed company that intends to opt for this process and get an inflow of investments from QIBs, their board of directors, shareholders, etc, must first approve it. This approval involves outlining the objective for opting for this process. It can be to raise capital to fund their operations, expand their business, reduce debt burden, etc.
Step 2: Preparation of Documents
The public company choosing a QIP consults with lead managers, i.e. generally investment bankers, after approval. Consulting with them, a company prepares the required documentation. They usually include details of the offering involving its issue size, method of pricing, allotment terms, along with other important mentions.
Step 3: Pricing and Bidding
As per the SEBI requirements, a company issuing shares and other assets to QIBs must set a particular floor price. This price is usually an average of the closing prices of shares of that company over the previous 2 weeks from the date of pricing. QIBs specify how many shares they want to buy and the price they are comfortable paying.
Step 4: Share Allotment and Listing
By adhering to the SEBI guidelines, the public company then allocates shares and other securities to QIBs, while maintaining transparency based on the bidding process. After that, the newly listed shares start trading in the recognised stock exchanges across India.
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Advantages of Qualified Institutional Placement
While you note the working of this process, you must also note some of its key advantages that cater to both the public company and QIBs. Here is a detailed view:
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Increase Market Confidence
It increases the credibility of a public company as a potential investment location. Public companies that successfully bring investments from institutional buyers through institutional placements show that large buyers have confidence in the growth of that company. It partially increases the confidence of retail investors as well.
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Transparency
From the point of view of an institutional buyer, this process ensures transparency, increasing their confidence to invest in public companies. It is because issuing companies must follow SEBI regulations to successfully execute it and ensure that institutional buyers have a clear view of all necessary details of the issuing company before investing.
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Liquidity
Not only does this process bring in institutional buyers and potentially appreciate the share prices of a public company, but it also increases the liquidity of that company’s shares. This allows more retail investors to participate in investments or trading in shares of that company.
A Few Disadvantages of Qualified Institutional Placement
Aside from noting its advantages, you must also care for its limitations:
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Market Dependency
The success of this process to bring in institutional investors is largely dependent on the prevailing market conditions. In case the market faces downturns or higher volatility, attracting institutional buyers and achieving the desired price per security might be challenging.
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Risks of Pricing
A company might find pricing and issuance tricky. It is because if that company’s shares are undervalued, it might impact its valuation negatively. Conversely, if they are overpriced, a company might lose potential investors.
SEBI Regulations and Compliance for QIP
Public companies must follow the norms as per the SEBI to successfully complete the institutional placements:
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Limit to Fundraising
As per the SEBI, a public company can raise a limited fund through this process. It is generally limited to 5 times their net profit on average over the past 3 years.
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Allotment and Lock-in
A company must adhere to a transparent and fair procedure to assign securities to QIBs within a set window after bidding. Also, QIBs usually cannot sell their shares within a 1-year asset allocation.
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Disclosure Requirements and Compliance
An issuing company must include essential details like their financial health, their intention to use the funds, involved risks, etc., in detail. Even after the process is completed, the issuing company must maintain disclosure requirements and ongoing reporting.
QIP vs Other Fundraising Methods: IPO, FPO, QIB
This process has differences in terms of functionalities and other factors from other fundraising methods. Here is a detailed view:
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QIP vs IPO
| QIP | IPO |
| It is exclusive to institutional buyers | Institutional buyers and retail investors can take part in it. |
| This process is comparatively cost-efficient for companies | IPOs involve marketing and several other compliance costs, increasing expenses. |
| This process is for already publicly listed companies. | It is for companies listing fresh on the stock exchanges. |
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QIP vs FPO
| QIP | FPO |
| It is limited to Qualified Institutional Buyers or QIBs only. | Both the retail and institutional buyers can participate in this. |
| This process involves minimal regulatory approvals. | It demands an extensive approval requirement with regulatory scrutiny. |
| Companies issue this at a pre-determined price and often provide discounts. | During an offering, its pricing depends on demand and supply. |
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QIP vs QIB
| QIP | QIB |
| It is the process of raising funds from eligible institutional buyers. | These are institutions with a higher financial strength and market knowledge, such as banks, fund houses, etc. |
| Funds raised using this process fuel company growth, expansion, etc. | These entities invest capital into a public company to fuel its growth. |
| Attracts institutional buyers to invest in companies. | They take part in institutional participation. |
Conclusion
The qualified institutional placement is a process to bring in investments from QIBs to public companies. It reduces the reliance on foreign investors while increasing speed with lower documentation and regulatory scrutiny in IPOs, FPOs, etc.
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FAQs
1. Who can invest in a QIP issue?
Only qualified or eligible institutions such as banks, insurance companies, fund houses, etc, can take part in this process.
2. Why do companies prefer QIP over rights issues?
Companies usually opt for the QIP as it is faster, involves fewer regulatory requirements and has lower costs.
3. Are QIP shares locked in for investors?
Yes, once a QIB gets shares allocated, they usually cannot sell them within 1 year of that allotment date.
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