SEBI restricts Mutual Fund participation to anchor and public IPO segments

The Securities and Exchange Board of India (SEBI) has prohibited mutual fund schemes from taking part in pre-IPO share placements, restricting their participation to the anchor investor segment or the public issue of an Initial Public Offering (IPO), reported Moneycontrol.

In a communication to the Association of Mutual Funds in India (AMFI), SEBI referred to Clause 11 of the Seventh Schedule of the SEBI (Mutual Funds) Regulations, 1996, which specifies that mutual funds can invest in equity shares or related instruments only if they are listed or intended to be listed.

The regulator clarified that the move follows multiple industry queries about whether mutual funds could invest in shares allotted before the anchor or public issue opens.

Also Read: SEBI mulls disclosure rules for billionaire family offices

SEBI said such investments would expose mutual fund schemes to the risk of holding unlisted securities in cases where an IPO is delayed or withdrawn—an outcome that would violate regulatory provisions, Moneycontrol reported.

“If the schemes of the Mutual Funds 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 clause,” SEBI said in its letter.

“Therefore, 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,” it added.

Also Read: SEBI proposes first investment in new mutual fund folios only after KYC compliance