Finance Bill 2021 has proposed several amendments to the Lic Insurance Corporation Act 1956. Most notable among these is the 10% reservation of the LIC IPO issue size to policyholders. Here is an explanation of the associated rules.
What exactly does the finance bill say? Extract from Page 108 of the bill
regarding various categories of persons in favour of
whom an issuer may make reservations on a competitive
basis, in relation to a public issue, the Corporation may make
a reservation on a competitive basis, to an extent of up to ten
per cent. out of the issue size, in favour of its life insurance
policyholders as one of the reserved categories for such
public issue.Provided that the value of the allotment of equity shares
to such a policyholder shall not exceed two lakh rupees, or
such higher amount as the Central Government may by
notification specify
Investors are looking at the 10% stake (which in of itself is quite small considering LIC’s customer base) but should be focusing on the words “competitive
basis”. This typically means to stand any chance of allotment the amount to be invested has to be at least two lakhs or any other higher amount when the issues come out.
This is because LIC has several customers in the upper-middle-class or HNI (high net worth category) who can easily afford the two lakh or even high limit.
The bill also states:
Provided further that, in the event of under-subscription
in the policyholder reservation portion, the unsubscribed
portion may be allotted on a proportionate basis, in excess of
the value referred to in the first proviso, subject to the total
allotment to a policyholder not exceeding five lakh rupees or
such higher amount as the Central Government may by
notification specify:Provided also that the policyholders in favour of whom
reservation is made under this sub-section may be offered
shares at a price not lower than by more than ten per cent. of
the price at which net offer to public is made to other
categories of applicants;
This “in the event of under-subscription in the policyholder reservation portion” is unlikely and therefore need not be considered any further! The next section means LIC’s life insurance policyholders may be offered shares at a price lower than that
offered to the public (max 10% discount).
With competition among policyholders for this 10% stake likely to be intense, it makes no sense for interested investors to buy a LIC cover just to be eligible for this discount. Even if they bid the maximum amount possible, allotment is a long shot.
Chances of getting LIC IPO allotment would be higher if the investor (whether LIC policyholder or not) compete in the general category and place a large bid. The policyholder discount will not apply, but that would be the price of higher allotment probability. A listing gain (assuming there is no market turmoil when trading beings) would take care of this ‘loss’. Please note that this is not a recommendation to bid
Use our Robo-advisory Excel Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
- Follow us on Google News.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Join our YouTube Community and explore more than 1000 videos!
- Have a question? Subscribe to our newsletter with this form.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)