The Securities and Exchange Board of India (SEBI) has prohibited mutual fund schemes from investing in pre-IPO placements of equity shares and related instruments. Instead, mutual funds may now participate only in the anchor investor portion or the public offering of an Initial Public Offering (IPO).
Key Highlights
- SEBI bans mutual funds from investing in pre-IPO placements to ensure compliance with listing regulations.
- Mutual funds can now only participate as anchor investors or in the public issue of IPOs.
SEBI communicated this decision in a letter to the Association of Mutual Funds in India (AMFI), citing Clause 11 of the Seventh Schedule of the SEBI (Mutual Funds) Regulations, 1996 — which mandates that schemes invest only in securities that are already listed or will be listed.
The regulator explained that allowing mutual funds to enter pre-IPO placements risks their holding unlisted equity if the IPO fails or is delayed — a scenario contrary to the regulatory requirement.
Industry participants have reacted with concern. Some argue that this decision limits mutual funds’ ability to access early-stage opportunities and generate alpha. They point out that other institutional investors such as family offices, Alternative Investment Funds (AIFs), and foreign funds still participate in pre-IPO deals — raising questions about a level playing field.
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SEBI’s move underscores its emphasis on investor protection and regulatory compliance within the mutual fund industry. However, it also prompts debate around market competitiveness and how mutual funds might adjust their strategies going forward.
