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Definition: Qualified Institutional Placement
A Qualified Institutional Placement (QIP) is a way for a listed company in India to raise capital. The company issues equity shares, convertible debentures or any other form of security which can be converted into equity to Quantitative Institutional Buyers (QIB’s). This is a preferred way of the listed companies to raise capital because it is free procedural hassles that a company would have to go through while raising capital.
QIP’s was introduced by SEBI (Securities and Exchange Board of India) in 2006 to allow the domestic equity market to raise capital apart from international investors. The usual practice of the Indian companies was to raise capital using ADR’s (American Depository Receipts). The companies used ADR’s because of hassles in raising capital in India and this was a way for international investors to control the Indian markets. Therefore SEBI introduced QIP’s to arrest the outflow of domestic equity.
QIP’s are offered only to a selected pool of investors and not to the general public because these pool of investors are usually firms and individuals who have a team of analyst researching the markets and who don’t the protection of SEBI like retail investors. These are usually large institutional investors like:
a. Mutual funds
b. Foreign Institutional Investors
c. Venture Capital Funds
d. Public Financial Institutions etc.
The advantage for QIB’s to invest in this way are:
a. Ability to get hold of a large stake in the company
b. No lock in period
Hence that is why a large number of institutional investors look forward to QIP’s.