Sebi bans participation of mutual funds in pre-IPO placements; enables investments in anchor rounds

Markets regulator Sebi has banned mutual funds from investing in equity placements before the IPO (initial public offer) but has allowed them to invest in anchor rounds, a source said on Friday. This move is aimed at boosting liquidity and increasing transparency in the valuation of companies selling their first shares.

“We have asked mutual funds not to invest in pre-IPO equity placement but in anchor rounds,” he added.

Earlier this month, Sebi amended the rules to revamp the share allotment framework for anchor investors in initial public offerings, a move aimed at widening the participation of domestic institutional investors such as mutual funds, insurance companies and pension funds.

Based on this, the regulator increased the total reservation in the anchor section to 40 percent from 33 percent earlier. This includes 33 percent for investment funds and the remaining 7 percent for insurers and pension funds.

If the 7 percent reserved for insurers and pension funds is not subscribed, it will be reallocated to investment funds. Moreover, the source said Sebi would soon replace the mandatory short-form prospectus in IPOs with a standardized “summary of offering document” to make the disclosures more investor-friendly. The regulator believes that even the abbreviated prospectuses for IPOs are too voluminous, deterring retail investors from reviewing them.

Regarding derivatives trading, the source said that “irrational exuberance” among a certain group of people, i.e. retail investors, is causing them to lose money.