MUMBAI: In a move that seeks to strengthen the investor protection net, the markets watchdog Sebi has barred mutual funds from investing in the pre-IPO placement levels of IPOs and wants them to invest only in the anchor investor portion of primary issues. The move is set to be a blow to the red-hot IPO market, which has so far raised over Rs 2 trillion in 2025, and has a long pipeline for the rest of the year.
This comes on the back of a banner year show in 2024, setting new records in capital, raising an unprecedented Rs 1.8 trillion from 317 public offerings, 2.6x the previous year’s.
In 2024, according to JP Morgan, India led the world in IPO volumes for the first time and was the second-largest IPO market globally in terms of funds raised, behind only the US.
Notable IPOs in 2025 include Tata Capital (Rs 15,512 crore), LG Electronics India (Rs 11,607 crore) and Hexaware Technologies (Rs 8,000 crore), while those in the pipeline include Groww, Phonepe, Pine Labs, Avaada Energy among 150 others. So far, 230 companies went public by October.
Mutual funds and the overall capital markets have been taken aback by the move as Sebi has been known for long to make regulatory changes through a consultative process.
In a letter to the industry body Association of Mutual Funds (Amfi), Sebi said, “It is hereby clarified that in case of IPOs of equity shares and equity-related instruments, schemes of mutual funds can only participate in the anchor investor portion or in the public issue”.
While an Amfi official said the management is still on Diwali holidays and so can comment only next week when they resume work, a mutual fund house official who has seen the Sebi letter confirmed the development to TNIE.
“Because, if the MF schemes are allowed to participate in pre-IPO placements, they may end up holding unlisted equity shares in case the issue or listing cannot be concluded for any reason, which would not be in compliance with the said Sebi norms,” the letter said.
Citing Clause 11 of the Seventh Schedule of the mutual funds regulations of 1996, which mandates that all investments by mutual funds in equity shares and equity-related instruments must be made only in listed securities or to be listed, Sebi clarified that the new direction is based on these provisions.
Sebi further said the clarification follows after several queries from the investors whether AMCs can participate in pre-IPO placements before the opening of the anchor or public issue as they fear that allowing them to do so could result in AMCs holding unlisted shares if an IPO were delayed or cancelled, which is a breach of regulatory norms.
The move has rattled AMCs, which have been the rock-solid support of the market so far this year pumping in over Rs 6 trillion.
The fund house source cited above said his AMC does not participate in pre-IPO placements normally and the move is likely led by the regulator’s concern over liquidity and also to strengthen investor protection by preventing funds from taking exposure to unlisted securities and also to ensure that all investments remain confined to listed or soon-to-be-listed instruments.
Funds lapping up IPOs have been pocketing huge profits as pre-IPO participation gives them better margins while the anchor quotas do not.
