LIC IPO: What LIC’s policyholders must know about investing in it

LIC has not specified the exact portion to be reserved for policyholders. However, the threshold is 10 percent. “The aggregate of reservations for eligible policyholder(s) shall not exceed 10 percent of the offer size,” the DRHP stated. As a policyholder, you can invest a maximum of Rs 2 lakh under the quota.

How can I find out if I am eligible for the policyholders’ quota?

According to the DRHP filed in  February, individuals with even one LIC policy as on February 13 (the date on which the DRHP was filed) and the bid or offer opening date can apply under the policyholder reservation portion. If you are an annuitant – that is, if you are deferred or immediate pension policyholder receiving regular pension – you, too, will be allowed to apply. But if your deceased spouse was an annuitant and you have been receiving the annuity after her death, you will not be eligible for this reservation. Those covered under group policies will not be eligible to apply under this quota.

There is a lot of talk around the discount that policyholders who wish to participate in the IPO will get. What is the quantum?

Yes, LIC policyholders are likely to get a discount on the issue price. However, LIC has not specified the quantum of discount so far. According to latest reports, policyholders will get a discount of Rs 60 to the issue price.

Also read: LIC IPO: ‘5-10 percent discount will make it attractive for policyholders’

Are there any specific conditions that policyholders need to fulfil to be eligible for the quota?

If you have not updated your PAN details in LIC’s records, you will not be considered an ‘eligible’ policyholder.

Also read: LIC invites its policyholders to become shareholders by updating PAN details  

I do not have a demat account. Can I use my parent’s or spouse’s demat account to apply?

Having a demat account is mandatory to participate in IPOs. And, as a policyholder who wishes to apply for LIC’s IPO, you should be the first account holder in your demat account. If it is joint account, then you should be the first or primary holder.

Is there any minimum sum assured or premium requirement to be eligible to bid under the quota or later for allotment?

LIC has not laid down any such condition to qualify for the quota. Similarly, allotment is not linked to the number of policies, premium amount or sums assured.

My mother has designated me as a nominee in her policy. Can I apply under the quota?

No. The quota is for policyholders not beneficiaries, so you will not be eligible. Likewise, beneficiaries who have received the death claim amount after the policyholder’s death cannot bid under the policyholder reserved portion.

I have been a long-time LIC policyholder, but now I live abroad. Can I apply under the quota?

Only resident Indians are allowed to bid under the quota.

My husband and I have a joint life policy. Can both of us bid under the policyholder reservation portion?

No. Only one of the two will be eligible to bid under the quota. PAN of the person who would be applying should be updated on LIC portal.

I am an LIC employee and also hold its policies. Can I apply under employee, policyholder as well as retail portions?

Yes, you can. “Application made in the policyholder reservation portion, employee reservation portion and retail portion – here all 3 bids would be considered as valid applications and will not be rejected as multiple bids,” the DRHP says.

Likewise, if you make applications under employee, policyholder and non-institutional portion, all three bids will be considered valid. However, let’s consider a scenario where you make applications under employee and policyholder quota as well as retail portion along with non-institutional category. Here, applications made in retail and non-institutional portions will be considered multiple bids and both will be rejected.

The surplus available for paying bonuses to participating policyholders is set to go down gradually, post-IPO. As a policyholder, should I be worried?
Yes and no. It is a fact that the profit-sharing arrangement is set to change and from FY25, 90 percent surplus will be available to policyholders, down from the current level of 95 percent. This could mean lower regular bonuses for you, though the change in profit-sharing ratio is not the only factor that determines the bonus rate. “Each product has a different bonus rate…also, if something more positive happens, bonuses could improve too. It all depends on how the corporation performs in relation to the (year’s) assumptions,” LIC Chairman MR Kumar had said at a press conference post filing the DRHP in February.

Besides, as Moneycontrol has often pointed out, it is best to keep your investment and insurance needs separate. Buy a large term cover - the simplest and most cost-effective form of insurance - to protect your dependents and invest through mutual funds to meet your long-term goals. Par products come with returns of 5-6 percent, opaque structure, relatively higher commissions and steep exit barriers. They don’t make for ideal long-term wealth creation avenues.