SEBI directs MFs to desist from investing in pre-IPO placements

SEBI has directed AMFI to speak the instruction to all AMCs and guarantee compliance with rapid impact
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FRANCIS MASCARENHAS

Capital markets regulator Securities and Trade Board of India (SEBI) has directed mutual funds to desist from investing in firms on the pre-IPO stage because it poses a serious danger for retail traders, sources stated.

The directive comes following clarifications sought by a number of mutual funds and the Affiliation of Mutual Funds of India (AMFI). With the present course, mutual funds can now make investments both immediately in IPOs or by means of the certified institutional purchaser and anchor traders portion.

Pre-IPO placement are often made a couple of months earlier than the opening of anchor funding and the general public problem.

Itemizing Compliance

In a letter to the trade physique AMFI, SEBI said that Clause 11 of the Seventh Schedule of the SEBI (Mutual Funds) Rules, 1996, mandates that each one investments by MF schemes in fairness shares and equity-related devices should be made solely in listed securities or to be listed securities.

“If the schemes of the Mutual Funds are allowed to take part in pre-IPO placements, they could find yourself holding unlisted fairness shares in case the difficulty or itemizing can’t be concluded for any cause, which might not be in compliance with the stated clause,” stated the SEBI letter.

“Subsequently, it’s hereby clarified that in case of IPOs of fairness shares and equity-related devices, schemes of Mutual Funds can solely take part within the Anchor Investor portion or within the public problem,” it stated.

SEBI has directed AMFI to speak the instruction to all Asset Administration Firms (AMCs) and guarantee compliance with rapid impact, sources stated.

Lock-in Threat

Beneath SEBI laws, there’s a lock-in interval of six months for pre-IPO shares for many traders who will not be promoters or anchor traders. This era begins from the date of allotment of shares and is designed to stabilize the inventory value and stop sudden sell-offs after the corporate lists on the inventory trade.

The value on the pre-IPO stage is mounted primarily based on the belief that the corporate will checklist at a sure premium and traders could make a very good revenue in a brief span of time.

Furthermore, there’s a better danger of the corporate failing to get SEBI approval for itemizing on account of numerous causes.

Quite the opposite, a fund supervisor stated the difficulty value beneath the QIB or anchor portion is identical because the IPO value, and there’s not a lot alpha to be made.

In addition to not providing any value benefit, the allotment beneath QIB comes with a lock-in of six months from the time of itemizing, and inventory can transfer both means earlier than MFs can consider reserving revenue, he added.

Given the current development, an analyst stated most IPOs are already priced at a premium and there’s hardly any room for traders to earn money quickly after itemizing.

Revealed on October 24, 2025