Sebi Prohibits Mutual Funds' Participation In Pre-IPO Placements; Allows Investment In Anchor Rounds

Markets regulator Sebi has prohibited mutual funds from investing in pre-IPO (initial public offering) share placements but has allowed them to invest in anchor rounds, a source said on Friday.

This step is aimed at boosting liquidity and enhancing transparency in the valuation of companies coming out with their initial share sale.

"We have asked mutual fund schemes not to invest in pre-IPO placement of shares but invest in anchor rounds," he added.

Earlier this month, Sebi amended rules to revamp the share-allocation framework for anchor investors in maiden public offerings, a move aimed at broadening participation by domestic institutional investors such as mutual funds, insurance companies, and pension funds.

Under this, the regulator increased total reservation in the anchor portion to 40 per cent from 33% earlier. This comprises 33% for mutual funds and the remaining 7% for insurers and pension funds.

If the 7% reserved for insurers and pension funds remains unsubscribed, it will be reallocated to mutual funds.

Additionally, the source said that Sebi would soon replace the mandatory abridged prospectus in IPOs with a standardized "offer document summary" to make disclosures more investor-friendly.

The regulator believes that even the abridged prospectuses for IPOs are too voluminous, which deters retail investors from reviewing them.

With regard to derivative trading, the source said that "irrational exuberance" among a class of people, or retail investors, is causing them to lose money.