Retail investors flock to establish HUFs to gain IPO allotment odds; does that strategy work?

As the IPO market experiences a significant surge, retail investors are increasingly turning to Hindu Undivided Families (HUFs) to enhance their chances of securing shares in IPOs while also benefiting from tax efficiency.

HUFs offer a strategic advantage for IPO participation due to their eligibility under the retail individual investor (RII) category, which reserves 35 percent of the shares. This contrasts with the non-institutional investor (NII) category, which only reserves 15 percent of the shares.

Setting up an HUF allows investors to split their capital effectively, enabling them to submit multiple applications under the RII category. This strategy increases their likelihood of allocation, especially for those with substantial capital, who can utilize both individual and HUF applications.

Furthermore, HUFs provide tax benefits compared to other structures like partnerships or using children's PAN numbers. Income from HUFs is taxed separately, potentially resulting in lower tax liabilities as it falls under lower tax slabs. This tax efficiency, coupled with the increased chance of IPO allocation, makes HUFs an attractive option for retail investors during the current IPO boom.

Overall, the rising interest in HUFs among retail investors reflects a strategic response to capitalize on the IPO frenzy while optimizing tax outcomes.