SEBI restricts MFs from participating in pre-IPO stock offerings

SEBI restricts MFs from participating in pre-IPO stock offerings

The purpose is to prevent them from holding unlisted shares

The Securities and Exchange Board of India (SEBI) has issued a directive that mutual funds (MFs) will not be able to invest in pre-IPO share placements. They can only participate in the anchor investor portion or the public issue of an initial public offering (IPO).

SEBI communicated the move to the Association of Mutual Funds in India (AMFI), the industry body. It directed the asset managers to invest only in the anchor investor portion or the public issue of an IPO.

The market watchdog cited Clause 11 of the Seventh Schedule of the SEBI (Mutual Funds) Regulations, 1996, "All investments by mutual fund schemes in equity shares and equity-related instruments must be made only in securities that are listed or to be listed."

The clarification was issued after SEBI received several queries on whether MFs could participate in pre-IPO placements before the opening of the anchor or public issue. It warned that such an involvement could result in MFs holding unlisted shares if an IPO was delayed or cancelled.

However, the market regulator clarified that in the case of IPOs of equity shares and equity-related instruments, schemes of MFs could only engage in the anchor investor portion or in the public issue.

To ensure compliance, SEBI directed AMFI to communicate the instructions to all asset management companies (AMCs) immediately.