SEBI Stops Mutual Funds From Investing In Pre-IPO Placements: Sources

The Securities and Exchange Board of India has stopped mutual funds from investing in pre-IPO placements, sources told NDTV Profit.

The fund houses will only be able to invest in the anchor investor portion or the public issue of an IPO. Anchor allotments take place a day before an IPO opens to the public, whereas pre-IPO placements occur several weeks or months ahead of the listing.

Under existing mutual fund regulations, schemes are allowed to invest in listed and to-be-listed securities. However, since pre-IPO placements happen well before a company’s shares are listed, there has been uncertainty over whether mutual funds could participate in them.

In a communication to the Association of Mutual Funds in India, SEBI explained that allowing mutual funds to invest in pre-IPO placements could expose them to the risk of holding unlisted shares if IPOs are delayed or cancelled.

The market regulator's move "will slow down pre-IPO placements", an investment banker advising on IPOs said.

Pre-IPO rounds often attract fund managers because they are typically priced at a discount to the eventual IPO price, offering potential upside and enhancing scheme performance.

Although mutual fund participation in these rounds has been limited due to regulatory uncertainty, some fund houses had recently begun exploring the option. For instance, SBI Mutual Fund participated in the pre-IPO round of Urban Company.

The SEBI directive to mutual fund houses comes at a time when the IPO market has been buzzing in India, with some big-ticket public issues expected to be launched in the period to come.

Lenskart, ICICI Prudential AMC, Pine Labs, boAT, Groww and Orkla India are some of the key IPOs that primary market investors are eyeing in the near future.