Sebi Proposes Flexible Retail Quota for Big IPOs To Boost Participation

India’s capital markets regulator is considering a significant tweak to IPO norms to better reflect the evolving investment landscape. The Securities and Exchange Board of India (Sebi), in a recent consultation paper, has proposed a more flexible framework for retail investor participation in large public offerings, as direct retail bidding continues to trail mutual fund flows.

Under the proposal, IPOs above ₹5,000 crore could see the retail investor quota drop from the current mandatory 35% to as low as 25% in a staggered format, while the share reserved for qualified institutional buyers (QIBs) could rise from 50% to 60%. Sebi has opened the paper for public comments until 21 August.

The idea is simple: make room for stronger demand from institutions in large deals, while ensuring retail investors still have meaningful access. In practical terms, Sebi suggests that for the first ₹5,000 crore of an IPO, the 35% retail reservation will continue to apply. But for any amount beyond that, just 10% will be set aside for retail. Even so, retail investors will be guaranteed at least 25% of the overall issue, regardless of size.

Read More | Peyush Bansal's Lenskart Eyes ₹8,000 Cr IPO, Files Draft Papers with Sebi

The regulator believes these changes would better matche ground realities as retail enthusiasm for direct IPO applications has plateaued in recent years, even as mutual fund investments continue to surge. According to Sebi, many large IPOs have struggled to fully subscribe their retail and non-institutional investor (NII) portions. Examples include Hyundai Motor’s ₹27,859 crore IPO, which saw retail subscription of just 0.4 times;, Hexaware’s ₹8,750 crore IPO (0.1x), and Afcons Infra’s ₹5,430 crore offer (0.9x).

Part of the challenge is scale. A ₹5,000 crore IPO requires around 700,000 to 800,000 retail applicants just to meet the quota. For a ₹10,000 crore issue, the number jumps to roughly 1.75 million, a steep climb especially at a time of dwindling retail participation.

Meanwhile, mutual funds are drawing steady inflows, especially through systematic investment plans (SIPs). Retail investments through SIPs hit a record ₹26,688 crore in May, and the mutual fund industry’s assets under management topped ₹70 lakh crore the same month. With many retail investors opting for fund-based exposure rather than direct IPO applications, Sebi’s proposal aims to align allocation rules with this shift in behaviour.

Read More | PhysicsWallah, 6 Other Cos Get Sebi's Nod to Launch IPOs

To balance the reduced direct retail share, the paper also suggests tripling the reservation for domestic mutual funds in the non-anchor QIB category, up from 5% to 15%. The goal is to preserve overall retail influence in IPOs, even if it comes through institutional channels.

If approved, the new rules could reshape how large companies approach IPO pricing and allocations. More importantly, they may offer a more sustainable path for ensuring both demand stability and fair retail participation, while also ensuring a better performance of big-pocket IPOs.