An Initial Public Offering (IPO) is a significant event where a private company offers its shares to the public for the first time, allowing retail and institutional investors to buy a stake in the company. While investing in IPOs can be an excellent opportunity for individuals and institutions to participate in the company’s growth journey, there are specific eligibility criteria that investors must meet to apply for an IPO.

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1. Eligibility for Retail Investors

Retail investors are individual investors applying for IPO shares under the retail category. Here are the criteria they must meet:

1.1. Demat Account

• Requirement: Investors must have an active Dematerialized (Demat) account with a Depository Participant (DP) registered with either NSDL (National Securities Depository Limited) or CDSL (Central Depository Services Limited).
• Purpose: The Demat account is where the allotted shares are credited.

1.2. PAN Card

• Requirement: A Permanent Account Number (PAN) issued by the Income Tax Department of India is mandatory.
• Purpose: PAN serves as a unique identification number for tracking transactions.

1.3. Bank Account with ASBA Facility

• Requirement: The bank account must be ASBA-enabled (Application Supported by Blocked Amount).
• Purpose: ASBA blocks the IPO application amount in the account until the shares are allotted, avoiding any upfront deductions.

1.4. Age Requirement

• Minimum Age: The applicant must be at least 18 years old to open a Demat account and apply for IPOs.

1.5. Residency Status

• Criteria: Residents of India can apply under the retail category. Non-Resident Indians (NRIs) can also apply for IPOs using their NRO (Non-Resident Ordinary) or NRE (Non-Resident External) accounts.

1.6. Investment Limits

• Maximum Limit for Retail Investors: The total application amount under the retail category cannot exceed ₹2,00,000.

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2. Eligibility for High Net-Worth Individuals (HNIs)

Investors applying for more than ₹2,00,000 fall under the HNI category. In addition to the requirements mentioned for retail investors, the following applies:

• Minimum Investment Amount: More than ₹2,00,000.
• Category: HNIs apply under the Non-Institutional Investors (NII) category.

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3. Eligibility for Institutional Investors

Institutional investors, such as mutual funds, banks, and insurance companies, have additional requirements:

• SEBI Registration: Institutional investors must be registered with the Securities and Exchange Board of India (SEBI).
• Application through Designated Broker: Institutional investors must apply through a SEBI-registered broker.
• Minimum Application Size: Specified based on the IPO guidelines.

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4. Eligibility for Non-Resident Indians (NRIs)

NRIs can also participate in IPOs, but they must meet specific additional criteria:

• NRI Bank Account: NRIs must have either an NRO or NRE account to apply.
• FEMA Compliance: The application must comply with the Foreign Exchange Management Act (FEMA) guidelines.

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5. Eligibility for Companies or Trusts

If companies or trusts wish to invest in an IPO, they must:

• Have a valid corporate Demat account.
• Be registered with SEBI if acting as institutional investors.
• Submit corporate resolutions or authorization letters for IPO participation.

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Key Takeaways

• To apply for an IPO, you need a Demat account, a PAN card, and an ASBA-enabled bank account.
• The eligibility criteria differ based on the category of investors, such as retail, HNI, institutional investors, or NRIs.
• Compliance with SEBI and FEMA guidelines is crucial for all applicants.

Understanding the eligibility criteria ensures a smooth application process and allows investors to take full advantage of the IPO investment opportunity. Always check the specific IPO prospectus for additional details and guidelines before applying.